User:Mr.AK11-fardamartin/Public expenditure

Before the World War I
At the end of the 19th century average public expenditure was around 10 percent of GDP. In USA it was only 7 percent and in countries like United Kingdom, Germany or Netherlands it did not exceed amount of 10 percent. Australia, Italy, Switzerland and France had public expenditure over 12 percent of GDP. It was considered as a significant involvement of government in economy. This average share of public expenditure increased to almost 12 percent before the start of World War I. Due to the World War I anticipation, the share increased quickly in Austria, France, United Kingdom or Germany.

Effect of the World War I and interwar period
The World War I caused a global growth of the public expenditure share in GDP. In United Kingdom, Germany, Italy and France, which were affected a lot by the war, the share of public expenditure even exceeded 25 percent. In interwar period the average share of the public expenditure was still slightly increasing. The United States increased its public expenditure with the New Deal. Other governments also increased public expenditure in order to create more employment. The increase was accelerated by World War II anticipation in the second part of the 30s among European countries. In 1937 the amount of average public expenditure share was between 22 and 23 percent, twice as much as before World War I. However, it is fair to mention that part of this increase of public expenditure share was caused by GDP fall. Most of industrialized countries had its GDP over 15 percent before the World War II. Only Australia, Norway and Spain had less than 15 percent of GDP.

World War II and post-war period
From the start of the World War I until 1960 the average share of public expenditure in GDP increased slowly from 22 to 28 percent. Most of this increase was given by growth of military spending caused by World War II. Spain, Switzerland and Japan had their public expenditure still below 20 percent of their GDPs.

Second half of the 20th century.
The average public expenditure, as a share of GDP, increased rapidly between years 1960 and 1980 from around 28 to 43 percent. No industrial country had this share below 30 percent in 1980. In Belgium, Sweden and Netherlands it was even over 50 percent. In last two decades of 20th century share of public expenditure kept increasing, but the growth significantly slowed down. In 1996 the average public expenditure was around 45 percent, which is in comparison with 1960-1980 period slow increase from year 1980. During 1980-1996 period the public expenditure share even declined in many countries, for example United Kingdom, Belgium, Netherlands etc.

Present
Since the late 1980s, the average public expenditure to GDP ratio is increasing slowly. The only industrialized countries that reduced significantly are New Zealand, Ireland and Norway. One of the reasons is growing skepticism about governmental intervention in the economy.

Composition
Public expenditure can be divided into COFOG (Classification of the Functions of Government) categories. Those categories are

1.      Social protection – pensions, subsidies for family and children, unemployment subsidies, R&D (Research and Development) on social protection.

2.      Health - public health services, medical products, appliances and equipment, hospital services, R&D on healthcare.

3.      General Public Services - executive and legislative organs, financial and fiscal affairs, external affairs, foreign economic aid, public debt transactions, R&D related to general public services

4.      Education - pre-primary, primary, secondary, tertiary education, R&D on education etc.

5.      Economic Affairs - general economic, agriculture, fuel and energy, commercial and labour affairs, forestry, fishing and hunting, mining, manufacturing, transport, communication etc.

6.      Public order and safety - police, fire-protection services, law courts, prisons etc.

7.      Defence - military defence, civil defence, foreign military aid.

8.      Recreation, culture and religion – Recreational and sporting services, cultural services, broadcasting and publishing services, religious services etc.

9.      Environmental protection - waste management, pollution abatement, protection of biodiversity and landscape etc.

10.  Housing and community services - housing development, community development, water supply, street lighting etc.

European Union
Public expenditures represented 46.7 percent of total GDP of the European Union in 2018. Countries with the highest percentage of public expenditure were France and Finland with 56 and 53 percent, respectively. The lowest percentage had Ireland with only 25 percent of its GDP. Among the countries of the European Union, the most important function in public expenditure is social protection. Almost 20 percent of GDP of European Union went to social protection in 2018. The highest ratio had Finland and France, both around 24 percent of their GDPs. The country with least social protection expenditure as percent of its GDP was Ireland with 9 percent. The second largest function in public expenditure is expenditure on health. The general government expenditure on health in European Union was over 7 percent of GDP in 2018. The country with highest share of health expenditure in 2018 Denmark with 8.4 percent. The least percentage had Cyprus with 2.7 percent. General public services had 6 percent of total GDP of European Union in 2018, Education around 4.6 percent and all other categories had less than 4.5 percent of the GDP.

Principles Governing Public Expenditure
Rules or principles that govern the expenditure policy of the government are called canons of public expenditure. Findlay Shirras has laid down the following four canons of public expenditure:

1.      Canon of Benefit – public spending must be done in a manner that it brings greatest social benefits.

2.      Canon of Economy – it says that economy does not mean miserliness. Public expenditure must be made productively and efficiently.

3.      Canon of Sanction – public spending should not be made without sanction od an appropriate authority.

4.      Canon of Surplus – public expenditure should be done in a way avoiding deficit. Government must prepare budget to create a surplus.