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If we look at total government spending as a share of potential GDP, we get this: So overall government spending as a share of potential GDP is less than one percentage point higher than it was before the recession.
The OECD forecasts that in 2010 it will average 5.7% of potential GDP for its mostly rich member countries.
The difference between actual and potential growth, expressed as a percentage of potential GDP, is known as the output gap.
Start with the CBO estimates of potential GDP, which can be subtracted from actual GDP to estimate the output gap.
I have taken to looking at the ratio of spending to (the CBO's estimate of) potential GDP.
First, it is coming to see that the costs of inaction are huge: the UN believes environmental degradation robs the country of 12% of potential GDP.
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It's worth looking at the ratio of government spending (all levels) to potential GDP (potential to correct for the effects of the business cycle on the denominator): So, there was a big rise for about 30 years after World War II.
According to Martin Wolf, up to 10% of annual potential GDP has been lost for ever.
"We lose 5% of our potential GDP every year, and African industries cannot be competitive without access to electricity," says Akinwumi Adesina, president of the African Development Bank.
Countries with negative output gaps fall short of their potential GDP growth and tend to have subdued inflation, or even deflation.
A good measure is the output gap, the level of actual minus potential GDP.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com