The True Levels of Government and Social Expenditures in Advanced Economies

Jacob Kirkegaard

No PB15-4, Policy Briefs from Peterson Institute for International Economics

Abstract: Much of the conventional wisdom concerning social spending is faulty, especially in the United States. Analyses typically focus on readily available information about direct government social expenditures and overlook how tax systems and private spending affect the level of social spending in different societies. By taking the full effects of tax systems and social spending from both private and public sources into account, Jacob Funk Kirkegaard finds that the true level of US social expenditures is fully comparable to European spending—and yet yields worse outcomes than in Europe. Any debate in the United States on social spending should thus focus not on how much is spent but on how and for whose benefit the money is spent. High aggregate social spending in the United States has a very low impact on overall income inequality and healthcare outcomes. Adopting some best practices from other countries in health care could thus led to substantial efficiency gains, not to mention better health outcomes. Lastly, the relatively large scale of tax breaks for social purposes and the associated overall poor social outcomes in the United States indicates an excessively reliance on the tax system to the detriment of fiscal sustainability, transparency, and redistributive fairness. Improving the overall quality of US social spending therefore requires an overhaul of the US tax code.

Date: 2015-02
New Economics Papers: this item is included in nep-pbe
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