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I've just watched "tagesschau" (the most important German news) and saw this:

Screenshot of budget widget

BIP = GDP. It is showing the planned defense budget of Germany.

Why are budget categories compared to GDP? Why are they planned in percentage of GDP? Shouldn't they be planned as a percentage of the budget?

This is not only done in Germany, but also in the US (example - but at least this one has the relation of the budget to GDP).

  • To clarify: my question is not specifically about military spendings – Martin Thoma Sep 5 '18 at 10:43
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GDP measures overall economy. Budget measures government spending.

Military expenditures are measured relative to both, depending on a context.

However, in the context of politics, measuring vs. GDP makes sense if you had to pick only budget or GDP for comparison:

  • Military expenditures are often considered an unrecoverable waste of resources, especially by some political factions (which isn't actually true for a variety of reasons not relevant to the question).

    As such, measuring how much of your economy military expenditures are helps assess whether you are "wasting" too much.

  • It helps normalize across countries.

    Different countries have different budget sizes relative to economy. Some have 100% or close to it. Some have a small fraction.

    Therefore, measuring vs. budget doesn't give a proper normalized measurement that would be usefully comparable across countries.

  • It helps normalized across time periods.

    Even within a country, budgets can change a lot yer to year, due to deficit spending. Normalized as % of GDP, it's easier to compare time over time.

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    The jab after "unrecoverable waste of resources" detracts from the quality of this answer imho - it would be improved if you just remove it, since it doesn't seem particularly relevant. – Erik Sep 5 '18 at 10:30
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    +1 for the distinction between budget and GDP. I find the GDP a very bad metric when it comes to government politics. We often hear statements like we need to spend X percent of the GDP on Y, yet only the budget can be determined by the government. If a country's GDP is mainly influenced by government spending, then this metric makes sense. However, if governmetn spending only accounts for a fraction of the GDP, then the GDP is a bad metric for setting goals on government spending on defense, science, etc. – Dohn Joe Sep 5 '18 at 13:18
  • @DohnJoe - somewhat tangential, but there's a certain amount of causal relationship between GDP and budget (not a clean one due to deficit spending, but if you assume constant deficit, available budget expenditures will be directly affected by revenues, which - speaking very broadly and inaccurately - are affected by overall economy as expressed by GDP) – user4012 Sep 5 '18 at 13:21
  • Consider adding in a section about metrics in international agreements. In the given example of German defence spending, there is a NATO requirement to spend 2% of GDP on it. Presenting the numbers in GDP form makes that comparison trivial. – Joel Harmon Sep 5 '18 at 22:29
  • @JoelHarmon - that is my point #2: "It helps normalize across countries" – user4012 Sep 5 '18 at 23:23
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There is no hard rule that spendings must always be compared to the GDP. Depending on what you are looking for, it may make sense to compare defence spendings to the population, or the country’s land area, or indeed to the budget total. It may also be better to look at absolute numbers in some cases, possibly corrected for inflation.

The likely reason for Tagesschau choosing to present the numbers as a percentage of the GDP (in addition to the absolute) is that the NATO members, which include Germany, have agreed to aim at spending at least 2% of their respective GDP for defence. Quite a few members are well below this target, and that state of affairs was heavily criticized by the US in the past months. It is therefore highly relevant that the percentage is planned to increase, but still fall short of the target.

  • I didn't want to imply there is a hard rule. I wanted to say that every time I see it, it's compared to gdp (and almost never to other spendings / percentage of all federal spendings) – Martin Thoma Sep 5 '18 at 10:45
  • @Martin Thoma: That may very well be a biased perception. I did survey a few articles found by a news search for bundeshaushalt, and there were lots of absolute numbers as well as comparisons to the previous year, and a few comparisons to total spendings (in particular the Investitionsquote). I only found comparisons to the GDP for defence and development aid, which are the two areas where internationally agreed targets relative to the GDP apply (NATO and ODA, respectively). – chirlu Sep 5 '18 at 11:21
  • If you search for "bundeshaushalt" you for sure get a biased perception^^ (But I agree with the general point: My perception could be biased) – Martin Thoma Sep 5 '18 at 11:33
  • @Martin Thoma: I’m open for suggestions on how otherwise to find news articles dealing with the federal budget … – chirlu Sep 5 '18 at 11:51
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Measuring expenditures as a percentage of GDP means that the "target is moving" when the economy grows or shrinks or if there is significant inflation.

This can lead to the strange effect that an expenditure may grow both in absolute terms and adjusted for inflation, but the GDP percentage goes down if the GDP grows even more strongly. This may be a desired effect, or not. As user4012 pointed out in his reply, a GDP percentage is a good measure of the commitment of a society, assuming that there is no limit on useful defense effort in absolute terms. (Germany has a problem to manage defense projects fast enough to spend all the money it allocates to defense right now ...).

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