Are the spending priorities of euro-area countries converging?

LINK TO THE POLICY PAPER ENGLISH

Government expenditure accounts for between 30 and 60% of GDP in the euro area. Which countries spend the most? To what extent do countries differ in their spending priorities? Has there been any convergence since the inception of the EU’s monetary union?

This Policy Paper analyses data on general government spending in the euro area and presents it in seven charts. Its findings can be summarised as follows:

  • Public spending ratios in the euro area vary widely and have shown no sign of lasting convergence since the inception of EMU. Belgium, Finland and France are countries with especially large public sectors, while the opposite applies to Ireland and the Baltics.
  • The differences are especially pronounced when it comes to social protection. Large economies like France, Italy and Spain have seen relative spending levels increase in the last fifteen years, while they have fallen in Germany.
  • When it comes to potentially growth-enhancing expenditure on education, public investment, and R&D, no uniform trend is discernible. However, several countries that were hit hard by the European debt crisis have decreased their productive spending.
  • Generally, spending levels and priorities seem to reflect first and foremost domestic preferences and path dependency.