Federal Investment

The federal government pays for a wide range of goods and services that are expected to be useful some years in the future. Those purchases, called investment, fall into three categories: physical capital, research and development (R&D), and education and training. There are several economic rationales for federal investment. It can provide public goods that the private sector and state and local governments would not provide efficiently, such as national defense and basic scientific research. It can promote long-term economic growth--as education spending does by developing a skilled workforce, as R&D spending does by prompting innovation, or as infrastructure spending does by facilitating commerce. And it can support the work of the federal government by, for instance, providing the structures and equipment necessary to perform federal activities. In 2012, the federal government spent $531 billion on investment, representing 15 percent of federal spending and 3 percent of gross domestic product (GDP). This report focuses on investment that the federal government makes either directly or through grants. [This report was written with guidance from Joseph Kile and Chad Shirley.]