Public SpendIng In The 20Th Century A Global Perspective

Public Spending in
the 20th Century
A Global Perspective

VITO
TANZI

LUDGER
SCHUKNECHT

International Monetary Fund

European Central Bank

published by the press syndicate of the university of cambridge
The Pitt Building, Trumpington Street, Cambridge, United Kingdom
cambridge university press
The Edinburgh Building, Cambridge CB2 2RU, UK http://www.cup.cam.ac.uk
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10 Stamford Road, Oakleigh, Melbourne 3166, Australia
Ruiz de Alarcón 13, 28014 Madrid, Spain
© Vito Tanzi, Ludger Schuknecht 2000
This book is in copyright. Subject to statutory exception
and to the provisions of relevant collective licensing agreements,
no reproduction of any part may take place without
the written permission ofCambridge University Press.
First published 2000
Printed in the United States of America
Typeface 10.5/13 Times Roman

System QuarkXPress [BTS]

A catalog record for this book is available from the British Library.
Library of Congress Cataloging in Publication Data
Tanzi, Vito.
Public spending in the 20th century: a global perspective/Vito Tanzi,
Ludger Schuknecht.
p. cm.
Includesbibliographical references and index.
ISBN 0-521-66291-5 (hb) – ISBN 0-521-66410-1 (pb)
1. Expenditures, Public. 2. Government spending policy.
I. Schuknecht, Ludger, 1962– . II. Title.
HJ7461.T36 2000
336.3¢9 – dc21
99-40258
CIP
ISBN 0 521 66291 5 hardback
ISBN 0 521 66410 1 paperback

Contents

List of Tables
Preface

page xi
xv

PART ONE The Growth of Government:
A HistoricalPerspective
I

II

III

1

The Growth of Government since 1870
1 The Period up to Word War I
2 The Interwar Period
3 The Period until 1980
4 The 1980s and the 1990s
5 The Symmetry of Expenditure Growth
6 Concluding Remarks

3
3
9
10
18
20
22

The Composition of Public Expenditure
1 Government Real Expenditure
2 Subsidies and Transfers
3 Social Expenditure
4 Interest onPublic Debt
5 Concluding Remarks

23
24
30
32
45
47

Revenue, Deficits, and Public Debt
1 Revenue

50
51

vii

viii

Contents

2
3
4

V

VI

61
64
67

PART TWO Gains from the Growth of
Public Expenditure
IV

Deficits
Public Debt and Implicit Liabilities
Concluding Remarks

71

Historical Evidence on Government Performance
1 A Note on the MethodologyFollowed
2 Economic Indicators
3 Social Indicators
4 Concluding Remarks

73
73
77
89
98

The Size of Government and Its Performance
1 Introduction
2 Public Expenditure Patterns
3 Economic Performance, Public Debt, and Labor
Market Indicators
4 Social Indicators
5 Environmental Indicators
6 Distributional and Social Stability Indicators
7 Governance-Related Indicators
8 ConcludingRemarks

99
99
100
102
108
110
112
115
119

121
124
127
129
130

PART THREE The Role of the State and
Government Reform
VII

The Experience of the Newly Industrialized
Economies
1 Public Expenditure Patterns in the Newly
Industrialized Economies
2 Economic and Labor Market Indicators
3 Social and Distributional Indicators
4 Governance-Related Indicators
5 ConcludingRemarks

131

Rethinking the Role of the State
1 The Scope for Reform

133
133

120

Contents

2
3
4
5
6
7
VIII

IX

Changing the Policy Regime
Reducing the Role of the State
The Implementation of Reforms
Reform and the Globalization of Economies
The Time Frame for Reform
Concluding Remarks

Fiscal Rules and Institutions
1 The Importance of Fiscal Rules andInstitutions
2 The Budgetary Process
3 Fiscal Rules
4 New Trends in Public Expenditure
Management
5 Implementation Agencies
6 Corruption and the Rule of Law
7 Concluding Remarks

ix

136
139
143
148
149
151
152
152
154
157
161
165
167
170

174
184
190
198
202
203
204
206

PART FOUR Recent Experiences of
Countries in Reforming the Government
X

Blueprint for Public...