Government Spending
What do governments spend their financial resources on?
This page was first published in October 16 and last revised in March 2023.
Public spending enables governments to produce and purchase goods and services, in order to fulfill their objectives – such as the provision of public goods or the redistribution of resources. In this topic page we study public spending through the lens of aggregate cross-country data on government expenditures. We begin with an analysis of historical trends and then move on to analyze recent developments in public spending patterns around the world.
The available long-run data shows that the role and size of governments around the world have changed drastically in the last couple of centuries. In early-industrialized countries, specifically, the historical data shows that public spending increased remarkably in the 20th century, as governments started spending more resources on social protection, education, and healthcare.
Recent data on public spending reveals substantial differences across countries. Relative to low-income countries, government expenditure in high-income countries tends to be much larger (both in per capita terms, and as a share of GDP), and it also tends to be more focused on social protection.
Recent data on public spending also shows that governments around the world often rely on the private sector to produce and manage goods and services. And public-private partnerships (PPP), in particular, have become an increasingly popular mechanism for governments to finance, design, build, and operate infrastructure projects. In the period 2005-2010 alone, the total value of PPP projects in low and middle-income countries more than doubled.
Other research and writing on government spending on Our World in Data:
- Historical poverty reductions: more than a story about ‘free-market capitalism’
- Healthcare Spending
- Education Spending
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See all interactive charts on government spending ↓
History of government spending
Government spending in early-industrialised countries grew remarkably during the last century
The visualization shows the evolution of government expenditure as a share of national income, for a selection of countries over the last century.
If we focus on early-industrialized countries, we can see that there are four broad periods in this chart. In the first period, until the First World War, spending was generally low. These low levels of public spending were just enough for governments to be concerned with basic functions, such as maintaining order and enforcing property rights.
In the second period, between 1915 and 1945, public spending was generally volatile, particularly for countries that were more heavily involved in the First and Second World Wars. Government expenditures as a share of national output went sharply up and down in these countries, mainly because of changes in defense spending and national incomes.
In the third period, between 1945 and 1980, public spending grew particularly fast. As we show in more detail later, this was the result of growth in social spending; and was largely made possible by historical increases in government revenues over the same period.
Since 1980 the growth of government expenditure has been slowing down in early-industrialized countries – and in some cases, it has gone down in relative terms. However, in spite of differences in levels, in all these countries public spending as a share of GDP is higher today than before the Second World War.
Although the increase in public spending has not been equal in all countries, it is still remarkable that growth has been a general phenomenon, despite large underlying institutional differences.
At the end of the 19th century, European countries spent around 10% of GDP via the government. In the 21st century, this figure is closer to 50% in many European countries. The increase in absolute terms – rather than the shown relative terms – is much larger since the level of GDP per capita increased very substantially over this period.
Public spending growth in early-industrialised countries was largely driven by social spending
The visualization above shows that government spending in early-industrialized countries grew substantially in the 20th century. The next visualization shows that this was the result of growth specifically in social spending.
The steep growth of social spending in the second half of the 20th century was largely driven by the expansion of public funding for healthcare and education.
Government spending across the world
Total government spending
The next visualization maps recent estimates of central government expenditure, as a share of national incomes, across the world. The data is published as part of the World Development Indicators and comes from the IMF.
The most striking feature in the chart is the degree of heterogeneity between world regions. Central governments in high-income countries – particularly those in Europe – tend to control a much larger share of national production than governments in low-income countries.
Countries like France spend multiple times as much as countries like Ethiopia.
These estimates have to be interpreted with caution, since central government expenditure provides a somewhat distorted picture of total public spending, particularly in federal countries with large sub-national governments.
Spending per person
The visualization shows total public expenditure per capita, across all levels of government. To allow for cross-country comparability, these estimates are expressed in current PPP US dollars.
As we can see, cross-country differences are also large here. In India, the government spends a fraction per person than countries like Norway.
Composition of government expenditure
Governments differ substantially not only in size but also in priorities
The visualizations above show that governments around the world differ considerably in size, even after controlling for underlying differences in economic activity and population. Here we show that governments also differ substantially in terms of how they prioritize expenditures.
The visualization shows the share of government expenditure that is specifically allocated to education.
As we can see, there are large and persistent differences, even within developing countries. The education spending in some developing countries makes up twice or three times the spending in others.
The proportion of government spending that goes towards social protection varies substantially across OECD countries
We have already pointed out that governments in high-income countries spend more resources than governments in low-income countries, both in per capita terms and as a share of their national incomes.
More so, high-income countries also have higher levels of social spending than countries with lower average incomes.1
The chart here shows social protection expenditures as a share of total general government spending, across different OECD countries. As we can see, there are also large differences across OECD countries themselves.
How do OECD countries distribute their allocations to social spending?
In the chart here we see the allocation of public spending (given as the percentage of a country's GDP) across a range of 'social spending' branches. Note that you can change which country is shown.
Although there are some differences across countries in how social expenditure is distributed, the three priorities are predominantly the same across the OECD. Old age expenditure (in the form of pensions and elderly care) typically receives the largest allocation of social spending, followed by health, with either family or incapacity-related benefits typically coming in third.
The relative importance of these branches has remained largely constant since 1980.
Employee compensation accounts for a large share of public spending in many low-income countries
The next visualization shows the share of central government expenditure that goes to the compensation of government employees. Compensation of employees includes all salaries and benefits (both in cash and in-kind).
As we can see, the salaries of public servants and other government employees are an important component of public spending in most countries. Yet differences between countries are very large.
Throughout Europe, the share of government spending that is devoted to the compensation of government employees ranges between 5% and 15%. In contrast, throughout most of Africa, the available figures range between 30% and 50%.
Public procurement
Procurement plays an important role in government expenditure
Governments around the world often rely on the private sector to produce and manage goods and services. The process through which governments purchase works, goods, and services from companies, which they have selected for this purpose, is often referred to as 'public procurement.'
The visualization shows the importance of public procurement in OECD countries (and partner countries providing comparable data). It shows the value of total general government procurement as a percentage of GDP.
As we can see, public sector purchases from the private sector are significant in many high-income countries.
Procurement is more than subcontracting large infrastructure projects
Public procurement comprises many different forms of purchases. Public procurement includes, for example, tendering and contracting in order to build large infrastructural projects. However, public procurement goes beyond infrastructure. It also includes, for example, purchases of routine office supplies.
Generally speaking, the part of public procurement that does not fall within the category of gross fixed capital formation (e.g. building new roads), is referred to as 'outsourcing', or 'contracting out'. This form of procurement often relies on short-term contracts.
According to the definitions used by the OECD, outsourcing includes both intermediate goods used by governments (such as procurement of information technology services), or the outsourcing of final goods and services financed by governments (such as social transfers in kind via market producers paid for by governments).
The visualization shows total expenditures on general government outsourcing (accounting for both intermediate and final goods), as a share of GDP.
As we can see, governments in many high-income countries spend substantial resources via outsourcing.
Procurement of infrastructure projects has grown substantially in low and middle-income countries
Public procurement strategies available to governments are varied. Governments may choose to take responsibility for financing, designing, building, and operating infrastructure projects – and they simply outsource specific elements. Or they may choose to pursue a public-private partnership, where private actors directly take responsibility for all these aspects, from financing to operation.
The term 'private finance initiative' is often used to denote a public procurement strategy, whereby governments choose a private firm (or consortium) to construct and operate – and sometimes also finance – public infrastructure. These initiatives typically take the form of long-term contracts. The term 'public-private partnerships' is often used to denote those private finance initiatives where the public sector retains an important participation. More information about terms and classification methodologies can be found in the resources provided by the World Bank's Private Participation in Infrastructure Database (PPID).
The chart, from the World Bank's PPID, shows the evolution of public-private partnerships in infrastructure, aggregating projects across 139 low and middle-income countries. The blue series shows the total value of projects in US dollars (scale in the left vertical axis), while the orange series shows the total number of projects (scale in the right vertical axis).
As we can see, the last two decades have seen a marked increase in public-private partnerships in low and middle-income countries. In the World Bank's PPID Visualization Dashboard, you can explore the data in more detail. The estimates by sectors and world regions suggest that electricity and roads, specifically in South Asia and Latin America, have been the key drivers of these aggregate trends.
What is linked with government spending?
Government spending correlates with national income
We have already pointed out that government expenditure as a share of national income is higher in richer countries. The visualization provides further evidence of the extent of this correlation.
The horizontal axis measures GDP per capita (after accounting for differences in purchasing power across countries), while the vertical axis measures government spending as a share of GDP. The horizontal axis is expressed by default in a logarithmic scale, so that the correlation is easier to appreciate — you can change to a linear scale by clicking on ‘Settings.’
We can see that there is a strong positive correlation: high-income countries tend to have larger government expenditures as a share of their GDP. And this is also true within world regions (represented here with different colors).
This correlation reflects the fact that high-income countries tend to have more capacity to extract revenues, which in turn is due to their capacity to implement efficient tax collection systems. In our topic page on Taxation, we discuss the drivers of tax revenues in detail.
Government spending is an important instrument for reducing inequality
The visualization shows the reduction of inequality that different OECD countries achieve through taxes and transfers.
The estimates correspond to the percentage point reduction in inequality, as measured by changes in the Gini coefficients of income, before and after taxes and transfers. Income 'before taxes' corresponds to what is usually known as market income (wages and salaries, self-employment income, capital and property income); while income after taxes and transfers corresponds to disposable income (market income, plus social security, cash transfers and private transfers, minus income taxes).
The data shows that across the 35 countries covered, taxes and transfers lower income inequality by around one-third on average. Yet cross-country differences are substantial.
Generally speaking, countries that achieve the largest redistribution through taxes and transfers tend to be those with the lowest after-tax inequality.
Interactive Charts on Government Spending
Annual budget of NASA
Central government expenditure as share of GDP
Education spending as a share of total government expenditure
Expenditures on general government outsourcing as share of GDP
General government procurement as a percentage of GDP, OECD
Government health expenditure as a share of GDP
Government procurement as share of government expenditure, OECD
Government spending as a share of GDP
Government spending as a share of GDP vs. GDP per capita
Health spending as a share of total government expenditure
Public social spending as a share of GDP
Reduction in income inequality before and after taxOECD
Share of employee compensation in public spending
Share of social protection in government expenditure
Social expenditure as share of GDP
Systems tracking and making public allocations for gender equality and women's empowerment
Total government expenditure per capita
Various measures of social expenditure as share of GDP
Endnotes
Bastagli, F., Coady, D., & Gupta, S. (2012). Income inequality and fiscal policy (No. 12/08R). International Monetary Fund.
Cite this work
Our articles and data visualizations rely on work from many different people and organizations. When citing this topic page, please also cite the underlying data sources. This topic page can be cited as:
Esteban Ortiz-Ospina and Max Roser (2016) - “Government Spending” Published online at OurWorldinData.org. Retrieved from: 'https://ourworldindata.org/government-spending' [Online Resource]BibTeX citation
@article{owid-government-spending,
author = {Esteban Ortiz-Ospina and Max Roser},
title = {Government Spending},
journal = {Our World in Data},
year = {2016},
note = {https://ourworldindata.org/government-spending}
}
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