In the equation constructing the GDP ( Y = C + I + G + NX ), the "G" stands for government. A huge amount of GDP is spent by government, even more in Europe!
Ever wonder what balanced budget refers to? It's when the government's expenditures equals the tax it takes in. Yes, I'm sure it does exist......sometimes.
If tax revenues are greater than expenditures then we have a budget surplus. If expenditures are greater than tax revenues, then the difference is borrowed on the open markets by way of bonds.
If the government borrows $100,000 from you and agrees to pay you back the $100,000 at the end of twenty years, and $5,000 at the end of each of those 20 years, you are being paid 5%.
The amount of lobbying that goes into how much the government spends each year is gargantuan. The "G" in the equation refers to how much the government actually spends on good and services. If the government taxes me $20.00 and gives it to someone through a social services program, that amount is not figured into the equation.