Institute for Research in Economic and Fiscal issues

IREF Europe - Institute for Research in Economic and Fiscal issues

Fiscal competition
and economic freedom


by ,

Public Spending Has No Impact On Economic Growth
This an IREF study of 30 countries from 1997 to present.

Over 30 to 35% og GDP, except in Scandinavian countries, taxpayers refuse to cover public spending over a 70% threshold. Governemts that have high public spending are entrapped in deficit and debt. Stimulus policies failed. True economic stimulus can be found by less regulation and less public intervention.

OECD data are used for population, GDP, employment, working time, investment, trade, spending, revenues and debt.

Read study : Relance et Croissance

OVERVIEW

GDP : if it would have continued on the same pre-crisis trend it would be now 10% higher.

Employment : if pre-crisis economic conditions would have been applied, it would 6% higher today.

Working hours : comparing to pre-crisis period, 7% working hours are missing.

Productivity : it was maintained during the crisis and increased afterwards.

Public spending and revenues : they had the same growth before the crisis. Since 2008, spending increased while revenues fell and did not get back to their 2007 level.

Deficit : since 2008, there is a non-stop deficit growth.

Debt-growth ratio : the pre-crisis ratio used to decrease. Since 2008, economic growth is too weak to compensate the growing deficit.

Investment : in 2011, there were 20% less investments than in the 1997-2007 period.

Trade deficit : France has shrinked in 2007.

30 COUNTRIES COMPARISON

3 periods were considered: pre-crisis 1997-2007, crisis 2008-2009, post-crisis since 2010.

Employment and productivity

There is a strong connection between GDP growth and hours worked. GDP growth benefited from 60% of hourly production and 40% of hours worked. Employment is a consequence of GDP.

Public spending and growth

During the 3 periods, high public spending countries have the weakest growth. After the crisis, they remained at a 0 growth level. On the contrary, low public spending countries gave growth again.

Stimulus

After 2008, the main fact is economic stimulation through public spending. During the crisis, countries with the highest public spending had no GDP growth. Post-crisis, 1 euro spent gave 1.1 euro in GDP: no stimulus effect.

Public spending and deficit

Scandinavian countries succeeded in having a high public spending while keeping a balanced budget. Other countries could not do this: spending over 35% of GDP is covered at only 75% by revenues. In 2010 this coverage diminished to reach only 65%.

In France, tax increases aiming at reducing the deficit will not work since public services are not organized and unchallenged as in Scandinavian countries.

Debt

High public debt throws countries in difficulties.

Public spending and investment

Countries with high public spending invest less than others. It is a bad context for the coming years.

Exports

Most protectionist countries saw their export shrinking.

France

France is in a bad situation since it has high public spending, high deficit, high debt, low investment, lack of commercial momentum, mediocre growth.

Crisis and the place of Government

Public spending is less efficient than private spending since the latter need a return on investment to work.

Countries with important Government intervention have the worse results: assistantship and public debt increased more than any other data.

Solution: less public spending, reduction of public debt and balanced budget.

Read study: Relance et Croissance

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