The Future of Public Spending

Abstract

Part One of this study provided evidence on the growth of public spending in the industrialized countries for the period between 1870 and the present. The data indicated that the growth of public spending over the past 125 years was not smooth. Far from it. For example, there was almost no growth for the first forty years, so that, on average, public spending as a share of GDP was almost the same in 1913 as it had been in 1870 even though the economies of these countries had grown enormously over these four decades. After 1913 public spending started to increase, prompted first by World War I, then by the Great Depression, and again by World War II. More importantly, over these decades attitudes vis-a-vis the role of the government in the economy started changing. Yet, between 1913 and 1960, the growth of public spending could still be considered as moderate. By the end of the decade of the 1950s, however, the general attitude vis-a-vis the role that the state could play in solving many economic and social problems, and, more broadly, in reducing various risks for the citizens, had changed dramatically. By this time, many had come to believe that the government and not the individuals themselves should provide protection against the risks of getting old, getting sick, becoming disabled or unemployed, remaining illiterate, and so on. And many believed that this role could be played best through higher public spending. At the end of the 1950s, we entered a period of great optimism about the government's ability to make life better for the citizens mainly through higher public spending.