What is the optimum % of government expenditure of GDP

BobQ

Generali wrote: »

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.

So, apart from the public sector, that would cover things like price fixing between energy suppliers, and monopoly rail, bus, and water services?

KrytenIceCubeHead

Higher in a recession, lower in a boom. (tm) J.M. Keynes. Pity the postwar governments remembered the first bit but not the second.

shortchanged_2

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.

I guess it is a lot to do with political ideology. There are the more free market, low taxation parties/governments such as the tories who believe individuals should have more money in their pockets to pay for services i.e more choice. Or parties/governments that believe the state should provide more intervention and services, some see this as a nanny state.

We all know communism fails economically as an ideology, it's just a case of what is the right balance.

So another question then is, what country do people think has got the best overall balance of economy, public services, standard of living etc?

Generali

BobQ wrote: »

So, apart from the public sector, that would cover things like price fixing between energy suppliers, and monopoly rail, bus, and water services?

Very much so.

There could be an argument that paying tax for a competition regulator improves economic efficiency.

Loughton_Monkey

We should follow the Asian model, and think more in terms of <20%.

This is for a number of reasons:

1. Governments should spend only on things that are for the common good. Roads, Rail, Infrastructure, Security, defense, education, International Commerce and Relations, a modicum of health care, a basic safety net for the disabled.
2. Focus should be 100% on how to encourage greater GDP, as a driver to increasing their own 'income'. Not on interfering with wealth distribution, or simply raising taxes.
3. The more money 'laundered' through government, the more 'leakage' is suffered through inefficiency, sleaze, corruption, waste, and administration costs to collect tax and swish it around.
4. When government introduces a 'benefit' for the first time, or increases an existing one, the euphoria for the lucky segment lasts 5 minutes. Those not in the group resent their money being spent on it. After the 5 mins, the benefit is seen as a 'right'. After 10 minutes, it is not only a 'right' but an extra degree of comfort that no longer needs to be 'worked for'.
5. Over time, despite our 'democracy', the money ends up being distributed [spent] for political, historic, and ego-building by people totally out of touch with commercial considerations [i.e. good for UK Ltd], or even current opinion.

Just look at state pensions. The Liberals who started the Old-Age Pensions Act 1908 must be turning in their graves. An 'honest' [benefit of the doubt] initiative to impact upon the poverty of a small segment of old people has mushroomed into the biggest political football and one of the most expensive segments of government spending ever.

Once started, however, it is impossible to reverse.

antrobus

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.

It's about that.

we first found robust evidence of the existence of a non-linear relationship between government activity and economic performance in France on one of the longest periods studied within this literature, 1871-2008. Then we empirically determine that the optimal State size on this period was 34% as a share of GDP, that is to say, much higher than the optimal level found in comparable long-time series studies on US.

https://halshs.archives-ouvertes.fr/halshs-00654363/document

The panel data estimates of Armey Curve suggest that optimal size of government in the sample of 12 European countries is approximately between 36 and 42 percent of GDP,

http://soc.kuleuven.be/io/egpa/fin/paper/slov2004/pevcin.pdf

antrobus

chewmylegoff wrote: »

32.435792%

Your're thinking of Switzerland.

BobQ wrote: »

Who actually says that there is an optimum figure?....

Economists.

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.

OECD data on General government expenditures as a percentage of GDP for 2011 shows that Denmark at 57.6% and Sweden at 51.2% are both pretty high up the table, but then so are France at 55.9% and Greece at 52%. Sweden has, of course, been making valiant efforts to get the number down. They were No 1 in 2001, but are now at No 6.

Norway is at 43.9%, which is lower than the OECD average, lower than the UK, about the same as Poland, and only a bit higher than the US at 41.7%.

Generali

antrobus wrote: »

Your're thinking of Switzerland.



Economists.



OECD data on General government expenditures as a percentage of GDP for 2011 shows that Denmark at 57.6% and Sweden at 51.2% are both pretty high up the table, but then so are France at 55.9% and Greece at 52%. Sweden has, of course, been making valiant efforts to get the number down. They were No 1 in 2001, but are now at No 6.

Norway is at 43.9%, which is lower than the OECD average, lower than the UK, about the same as Poland, and only a bit higher than the US at 41.7%.

My feeling is that Norway needs to be treated as a special case due to oil.

purch

Generali wrote: »

My feeling is that Norway needs to be treated as a special case due to oil.

And it gets really cold there in the winter

antrobus

Generali wrote: »

My feeling is that Norway needs to be treated as a special case due to oil.

I was wondering about that.

But then, I don't think that having a lot of oil revenue, changes the amount of money a government spends as a share of the overall economy. It still means that Norway has a smaller government than we do for example.

Although it might mean that Norway can 'afford' to have (say) a bigger government in Switzerland, because of the oil revenues.