Public expenditure in Europe

 Public expenditure in Europe

 

As it is well known, public budgets have been put on trial in Europe as the cause of all evils. It may be interesting to look at what happened in the seven years since the crisis began. Table I shows the percentage of GDP expenditure and total revenue (at all levels of government) in seven European countries, two of which (the UK and Sweden) out of the euro-area. The order of the countries is based on the share of public spending in 2007. The shares of public spending have increased in all countries; revenues also increased in four countries, while decreased significantly in Spain and Sweden, as well as (to a lesser extent) in the UK.

 

Table I

                                      Total expenses                                                 Total Revenue

                                         2007 2014                                                           2007   2014

 

France                            52.2    57.2                                                             49.7    53.2

Sweden                          49.7    53                                                                 53       51.1

Greece                            46.9    49.3                                                             40.2    45.8

Italy                                46.8     51.1                                                             45.2    48.1

United Kingdom         42.9     44.2                                                             39.9    38.7

Germany                       42.7     43.9                                                             43.1    44.6

Spain                              38.9     43.6                                                             40.9    37.8

 

However these data  are partly misleading, because of the different rules of taxation adopted in the countries. For example in Germany pensions are largely tax-exempt, while in Sweden all monetary transfers are taxed. Moreover, the level of debt and its cost determine interest expenditure very different from country to country. Improved consistency we can find in the data related to the set of public services provided by the states, as shown in Table II

 

                                                                                       Table II

 

                                                                        Government consumption

                                                                                    2007         2014

 

Sweden                                                                     24.1           26.3

France                                                                       22.3           24.3

United Kingdom                                                     20              19.7

Greece                                                                       19.9           19.8

Italy                                                                           18.9            19.5

Spain                                                                         17.7            19.2

Germany                                                                  17.5            19.4

 

We can see that also the share of services in GDP has had an upward trend, with two slightly deflections (United Kingdom and Greece). Sweden and France confirmed clearly a leading  role, while the distances between the other five countries have been reduced significantly. But we must remember that the data refer to a percentage of GDP; in the seven years the economy had totally different trends among different countries; in Sweden is leading with a cumulative + 5.8%, while in the queue, as is known, there is Greece with -25.8%.

 

Therefore we can compare the growth rate of public services in different countries looking at the change in GDP in the seven years in question:

 

                                                                                 Table III

 

                                          GDP change                                             Public consumption change

 

Sweden                              +5.8                                                                            +15.5

Germany                           +5.1                                                                             +16.5

UK                                       +2.1                                                                             +4

France                                +2.3                                                                             +11.5

Spain                                  -5                                                                                  +3.1

Italy                                    -8.9                                                                               -6

Greece                               -25.8                                                                             -26.2

 

As you can see, the provision of public services (health, education and a variety of public goods) to the communities of the seven countries (numerically stable) had very different trends. In Germany and Sweden there have been significant increases, due also to the increases in the share of GDP; France, despite a lower GDP growth than UK increased its services five times more, and here we can see the difference in fiscal policy between the two countries. Even Spain, with negative growth, has slightly increased services through a quota increase.

The two countries with a negative change are Italy and especially Greece. In Italy the slight increase in the proportion has reduced public consumption a little less than the fall in GDP, while this did not happen in Greece. If I say, "the share of government consumption in Greece in 2014 was higher than that of Germany" I make a statement similar to those mentioned by Mark Twain: “Figures often beguile me, particularly when I have the arranging of them myself; in which case the remark attributed to Disraeli would often apply with justice and force: "There are three kinds of lies: lies, damned lies and statistics."