The government is responsible for providing goods and services to the population, some of which are its exclusive competence (e.g. administering justice), and redistributing income (e.g. via social benefits and subsidies). Government expenditures, funded primarily through taxes and social contributions are usually less flexible than revenues as they are less sensitive to the business cycle and reflect past and current policy decisions guaranteeing entitlements and rights.
In 2017, on average general government expenditures in OECD countries amounted to 40.4% of GDP, a 1.4 p.p. increase from 2007. France is the country that spent the most both in 2017 (56.5% of GDP) and in 2007 (52.6% of GDP). Between 2007 and 2018 for countries with available information the largest increase in expenditures occurred in Norway (7.3 p.p.) driven by a sustained period of expansionary countercyclical fiscal policies. However, as already witnessed by the reduction (1.3 p.p.) between 2017 and 2018 Norway is shifting towards neutrality in public accounts and placing a greater focus on spending efficiency.
Ireland and Mexico spent the least in 2017, with government expenditures representing 26.3% of GDP respectively. Between 2007 and 2017, the expenditures-to-GDP ratio decreased the most in Ireland (9.6 p.p.), driven mainly by the GDP headline figure increasing at a very fast pace. In 2015, a small number of multinational enterprises relocated their intellectual property assets to Ireland leading to a huge increase in the Irish capital stock and a subsequent increment in exports through contract manufacturing (OECD 2018b). In turn, Mexico also increased expenditure between 2007 and 2017 (4.7 p.p.), driven by increases in social spending (e.g. health, old age), but further room exists to increase the efficiency of this spending by avoiding duplications and leakages in social assistance programmes (OECD, 2019a).
Government expenditures per capita in OECD countries were USD 18 441 PPP in 2017, on average, up from USD 13 852 PPP in 2007. Luxembourg had the highest per capita expenditures in 2017 (USD 46 208 PPP) growing by USD 16 454 PPP between 2007 and 2018. While the comparatively high expenditure in Luxembourg is partly explained by a large proportion of cross-border workers that do not count as residents – hence the denominator (e.g. the population) is reported smaller than it would be if they were counted – it also reflects countercyclical measures implemented to fight the crisis. Public spending in Luxembourg is expected to keep increasing as ageing-related costs will rise substantially in the coming years (OECD, 2019b).
Between 2007 and 2017, the annual average real growth rate of government expenditures per capita was 1.0 % per year across OECD countries. Greece and Italy were the only countries where spending decreased by 2.6% and 0.4% respectively during this period. Yet, both Greece and Italy increased their spending per capita in 2017-18 (by 0.9% and 0.4% respectively). In turn, Korea (+3.5%) increased its government expenditures per capita at the highest average rates between 2007-17. While overall public spending remains low in Korea, this rise is triggered by social spending increasing in a sustained way over the past decade, reflecting concerns to increase the well-being levels in Korea.
