Reforming Public Expenditure in Industrialised Countries: Are There Trade-Offs?

46 Pages Posted: 28 Apr 2005

See all articles by Ludger Schuknecht

Ludger Schuknecht

European Central Bank (ECB)

Vito Tanzi

International Monetary Fund (IMF); National Bureau of Economic Research (NBER)

Date Written: February 2005

Abstract

In this paper, we show that, contrary to common beliefs, over the past two decades several countries were able to reduce public spending by remarkable amounts. These countries did not seem to have suffered from these large reductions either in a macroeconomic sense, or in terms of lower values for socio-economic indicators. On the contrary, ambitious expenditure reform coincides with improvements in fiscal, economic, human development and institutional indicators. Positive developments associated with expenditure reform, in some instances, have taken a while to materialize and early and persistent reformers have, hence, already seen more of them. Unfavourable effects on income distribution within countries are small and they are mitigated in absolute terms by faster growth in the medium run and by the possibilities of better targeting of public spending. Moreover, there is significant divergence across countries that suggests that country circumstances and reform design matter.

Keywords: public expenditure, expenditure reform, economic growth, socio economic indicators

JEL Classification: H5, H6, O57

Suggested Citation

Schuknecht, Ludger and Tanzi, Vito, Reforming Public Expenditure in Industrialised Countries: Are There Trade-Offs? (February 2005). Available at SSRN: https://ssrn.com/abstract=647947 or http://dx.doi.org/10.2139/ssrn.647947

Ludger Schuknecht (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344 6494 (Phone)
+49 69 1344 7809 (Fax)

Vito Tanzi

International Monetary Fund (IMF) ( email )

700 19th Street NW
Tax Policy Division Fiscal Affairs Department
Washington, DC 20431
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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