5 - Reforming Public Expenditure

Summary

Public expenditure reforms over past decades have reinvigorated states and economies in many countries. A first group of countries already started to reform their public expenditure in the early to mid-1980s, as the negative side effects of high spending, taxes and deficits grew. A second group of reformers followed in the early to mid-1990s. These countries reduced public expenditure significantly as part of comprehensive reform agendas. Reforms focussed on consumption expenditure and the welfare state, and improved economic structures and institutional frameworks. This strengthened public finances, growth and employment. Only a few countries did not reform, and their public expenditure continued to rise strongly. In the 2010s, a third group of countries in Europe started to reform in the context of the global financial crisis. These countries also curtailed expenditure significantly and undertook institutional reform to the benefit of fiscal sustainability, growth and employment.