What is the optimum % of government expenditure of GDP

shortchanged_2

With Osbournes latest budget being questioned on where he will raise some of finances to fund certain projects, there is the likelihood of more austerity in the next few years.

So what percentage if GDP could be seen as an optimum level and why (if anyone knows)?

http://www.theguardian.com/news/datablog/2012/oct/16/government-spending-countries-gdp

I have found this article which shows various countries of the developed world and government expenditure as a percentage of GDP. Pretty much all are reducing state expenditure but there are quite wide differences among countries. It is noticable that there are countries where the standards of living are seen as good with both high and low levels of government spending.

So where's the happy medium?

chewmylegoff

32.435792%

shortchanged_2

chewmylegoff wrote: »

32.435792%

How did you get such an exact answer?

BobQ

chewmylegoff wrote: »

32.435792%

Sounds like you are looking fro an argument tonight?

CLAPTON

are the figures comparable?
there are numerous ways of fiddling the figures
PFI versa capital expenditure
how nationalised or semi-nationalised or regular industries are accounted for

shortchanged_2

CLAPTON wrote: »

are the figures comparable?
there are numerous ways of fiddling the figures
PFI versa capital expenditure
how nationalised or semi-nationalised or regular industries are accounted for

I guess tax levels are high in the scandanavian and benelux countries, so that accounts for the greater level of government expenditure. These countries also have high standards of living.

Generali

I'll look up the studies when I get time but IIRC, empirical studies have suggested about a third. Don't quote me on that because I honestly can't remember though.

shortchanged_2

Generali wrote: »

I'll look up the studies when I get time but IIRC, empirical studies have suggested about a third. Don't quote me on that because I honestly can't remember though.

Interesting Gen as very few countries are anywhere near that. And as I stated earlier countries such as Sweden, Denmark, Austria and Norway are nowhere near that but are regarded as having a good standard of living.

Generali

shortchanged wrote: »

Interesting Gen as very few countries are anywhere near that. And as I stated earlier countries such as Sweden, Denmark, Austria and Norway are nowhere near that but are regarded as having a good standard of living.

Like I say, I honestly can't remember and it might be 50% or 10%.

The way I see it is that all Government expenditure requires taxation and all taxation reduces economic wellbeing (see the deadweight loss effect for the reason). Some Government expenditure increases output however (e.g. having a functioning system of property rights) so that deadweight loss needs to be tolerated. Other Government expenditure isn't 'necessary' but makes us feel a lot better about ourselves (e.g. state provision of health care, welfare payments, foreign aid) and then there's a load of hazy stuff in the middle (e.g. state education). Remember this is just about maximising economic output, there is no 'fair' or 'just' in here as yet.

The key to the whole thing lies in the idea of deadweight loss. It's one of those things like compound interest that is incredibly powerful but that many people don't really get.

BobQ

Who actually says that there is an optimum figure? If people want to pay more/less tax and have better/worse services then what is wrong with different figures?

Ultimately it is a political decision and Osborne is hell bent on making it as low as he thinks he can get away with, not for an economic reason but for a political goal. If people vote to allow him to do this fine.

Generali

BobQ wrote: »

Who actually says that there is an optimum figure? If people want to pay more/less tax and have better/worse services then what is wrong with different figures?

Ultimately it is a political decision and Osborne is hell bent on making it as low as he thinks he can get away with, not for an economic reason but for a political goal. If people vote to allow him to do this fine.

There are different levels of spending and tax which are consistent with differing levels of economic efficiency.

If the Government wrecks the economy by taking all the resources then the poor end up with nothing.