Measuring the Size of the Public Sector: A Broad View of Social Expenditure across Countries

Abstract

Most analyses of public budgets – of which social spending is an important element - are based on gross (before tax) public expenditure data. However, a narrow focus on such information can be terribly misleading as it ignores that governments sometimes claw back social spending through taxation of benefit income, while also using tax systems to directly provide social support to households (e.g. child tax credits). Governments also tell or encourage individuals and companies to arrange social support (e.g. mandatory employer-provided sickness payments or favourable tax treatment of private pension contributions). Accounting for the impact of the tax system on budgetary allocations with a social purpose leads to indicators on net public social expenditure. Also capturing private social spending facilitates considering what part of an economy’s domestic production recipients of social benefits draw on: net total social expenditure. These indicators give a comprehensive view of social spending within and across countries.