When Government Spending Becomes a Problem

Government Spending

 As a country grows wealthier, spending by the government tends to increase.

Is the government spending much higher (or lower) as a share of the economy than in other nations at the same income level? 

The worst case is a fat state getting fatter, compared to its peers.  

Developed economies

Among the top twenty developed economies, the king of this class has long been France.  

The French government spends an annual sum equal to 56% of GDP, more than any other country, barring the possible exception of Communist like North Korea.  

• France's spending level is 18% above the 39% average for developed nations - the biggest gap in the world.  
• Over the last decade, the tax burden required to support this state was driving businesspeople out of the country in droves.  
• France's own president, Georges Clemenceau, in the early 20th century described it as "a very fertile country: you plant bureaucrats and taxes grow."

Many European states have been under pressure to cut back since the crisis of 2008, particularly where their spending amounts to more than half of GDP.  Led by France, that list includes Sweden, Finland, Belgium, Denmark, Italy and until recently, Greece.   Greece has been moving in a positive direction - with state spending falling from 51$ to 47% of GDP - in part because its creditors forced Athens to make painful cuts in civil service jobs and salaries.

Prior crises had already started to erode the welfare state in Europe in the late 1990s.  Scarred by the crisis of 2008 and its aftermath, other European nations will remain under pressure to keep the size of the state in check.

The lighter spenders in the developed world include the United States, Austria and Australia, with government spending amounting to between 35 and 40% of the GDP.  Switzerland was even lower, at 33%.

Emerging Nations

Emerging Big Spenders

Among the twenty largest emerging nations the outlier for many years was Brazil, where official government spending amounted to more than 40% of GDP, a level more typical of a rich European welfare state than a middle-class nation.  

• In recent years, under a controversial right-wing government, that figure has come down to 38%, still well above the 32% average for nations with a per capita income of around $12,000.   
• Brazil had by 2019 fallen behind Poland (42%) and Argentina (39%) for the title of the emerging world's biggest, most bloated spender.
• Brazil's recent turn reflects the growing realization that it could not keep spending like a rich European welfare state, as well as growing frustration with the dysfunctional system.

Emerging Small Governments

The large emerging countries with the smallest governments include Indonesia, Nigeria, South Korea and Taiwan.  

The East Asean (South Korea and Taiwan) success stories were built on a model that, until very recently, delayed the development of welfare programs, kept government spending around 20% of GDP or less and focused that spending on investment in infrastructure and manufacturing.  

Even today, only 30% of Asia's population is covered by a pension plan, compared to more than 90% in Europe.    

Taiwan's public healthcare system did not exist in 1995 but now covers nearly 100% of the population and costs just 7% of GDP; that compares well to spotty coverage costing 18% in the United States.

Governments in the Andean countries of Columbia, Peru and Chile all look relatively undersized, as does Mexico, with government spending equal to 25% of GDP, 7% below the average for its income class.  It is mainly on the Atlantic coast - in Brazil, Venezuela and Argentina - that governments suffer from bloat.