Comparing Public Spending and Priorities Across OECD Countries

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Social expenditures can reap significant economic rewards when done well.

By Sabina Dewan, Michael Ettlinger | October 2, 2009

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At the heart of progressivism is the belief that government—not big government, or small government, but effective government—has a critical role to play in ensuring the well being of its citizens. Public spending serves an important function in pursuing economic growth objectives while ensuring that gains are widely distributed to promote broad-based increases in living standards. But governments’ relative fiscal positions, how much they spend, and the composition of that spending is likely to make a difference in achieving these objectives. Spending in certain areas is more likely to contribute to growth and a wider distribution of benefits than spending in others.

Member countries of the Organization for Economic Cooperation and Development—an international organization consisting primarily of developed, free-market economies—vary significantly in 1) their relative fiscal positions, or deficits and surpluses, 2) their amount of public spending, and 3) how they allocate spending across different categories to reflect priorities.

This descriptive study examines how OECD countries have addressed the current economic situation through their fiscal balance sheets, and then goes on to consider similarities and differences in public spending across OECD countries through the prism of economic and social objectives. Countries are compared according to three relative measures of government spending: spending as a share of GDP, spending per capita, and spending by category as a percentage of total government expenditure.

There are several reasons countries run surpluses, although OECD countries generally run deficits, or small surpluses. Fiscal deficits can grow quickly during an economic crisis such as the current one, which poses an economic and political problem. But they are both inevitable and necessary to nurse the economy back to health. There is little disagreement that a balanced budget is desirable in the long term, however.

Of equal importance is how much a government spends, and particularly how effectively it puts the revenues it collects through taxes back into the economy. A period of economic recession transforms the calculus for fiscal balance and determines which types of expenditures are likely to help economies stabilize, recover, and grow in a way that leads to broad-based increases in living standards. But at all times, expenditures that help the economy should go beyond those that directly promote business to include social expenditures on health, education, and social protection. Done well, these social expenditures can reap significant economic rewards.

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