Government spending and taxation

The tables on this page show one method of measuring the size of government: government spending and taxation, by all levels of government, compared with the size of the economy (GDP). By this measure the size of the selected countries' governments varies considerably, with the largest approaching twice the smallest. The single factor likely to do most to explain differences in size is the comprehensiveness and generosity of countries' social welfare systems. So Sweden is at the top and Ireland near the bottom. Despite the widespread belief to the contrary, Australians are not heavily taxed.

The tables reveal the quite dramatic growth in the size of government throughout the developed world over the 1970s and 1980s, but with little further growth or even some decline since then. Note that for government spending or revenue to rise as a proportion of GDP it must grow at a faster real rate than the economy overall.

It can be seen from Table 5.1 that government spending (outlays) grew particularly strongly in the 1970s in all the selected countries and continued growing in the 1980s, though at a somewhat slower rate. In the 1990s, however, the rise in the overall mean was minor and in the 2000s spending declined relative to GDP in almost all countries. This is explained partly by strong growth in GDP (because strong growth leads to declining spending on unemployment and other welfare payments) but more particularly by greater and more effective efforts to restrain government spending.