{
  "title": "The Future of the State Revisited: Reforming Public Expenditure",
  "publication": "IMF Blog, April 16, 2014",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2014/04/16/the-future-of-the-state-revisited-reforming-public-expenditure",
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  "summary": "Authors: Sanjeev Gupta, Martine Guerguil",
  "sections": [
    {
      "heading": "Context and framing",
      "content": "- Authors: Sanjeev Gupta, Martine Guerguil\n- Date: April 16, 2014\n- Theme: Drivers of rising government spending and options for public expenditure reform in the wake of the global financial crisis.\n- Framing points:\n  - The global financial crisis highlighted sustainability concerns for public finances but exacerbated an already ongoing trend of rising government spending.\n  - IMF Fiscal Monitor analysis examines factors behind the increase in public spending, particularly social spending, and discusses reform options."
    },
    {
      "heading": "Explanations for the growth of government spending",
      "content": "- Long-run economic hypotheses supported by IMF analysis:\n  - \"Wagner’s Law\": demand for public goods and services increases as countries become richer.\n  - \"Baumol’s cost disease\": the cost of public provision of goods and services tends to increase faster than productivity (example: orchestra musicians).\n- Implication: In the absence of mitigating measures, pressure on governments to spend will continue, though possibly at a slower pace as income and productivity growth level off.\n- Key quantitative projection:\n  - In the absence of reforms, government spending in emerging market economies could increase by between 3 and 6 percentage points of GDP through 2050."
    },
    {
      "heading": "Additional upward pressures on public spending",
      "content": "- Population aging, which will increase the cost of providing health care and pensions.\n- Normalization of monetary policy, which will increase debt payments when interest rates eventually start to rise."
    },
    {
      "heading": "Options and principles for spending reform",
      "content": "- Overarching objective:\n  - Ensure finances remain sustainable now and into the future while still fostering growth and equity; balance tax policy and spending reform.\n- Country-differentiated approaches:\n  - Advanced economies: consolidation needs are largest and scope to raise revenue through taxes is limited → spending cuts may be necessary as part of a wider reform strategy.\n  - Emerging market and low-income economies: many lack access to full public services such as education and health care → scope to expand provision by raising taxes, coupled with expenditure reprioritization.\n- Common policy elements and recommendations:\n  - Avoid across-the-board spending cuts:\n    - Such cuts may be expedient but are neither efficient nor welfare-enhancing and have deleterious effects on long-term growth.\n  - Contain social spending and the public wage bill:\n    - Social spending and the public wage bill make up the bulk of government spending.\n    - Reining in social spending requires tackling public pensions and welfare benefits.\n    - Pension reform: gradually raise the retirement age while protecting the vulnerable and expanding access when needed.\n    - Welfare: improve targeting of welfare benefits to generate fiscal savings without compromising equity.\n    - Public wage bill: durable reduction requires replacing wage and hiring freezes with deeper structural measures.\n  - Improve efficiency to achieve cost-savings:\n    - Large scope for efficiency gains in the provision of education and health care and in public investment.\n    - For low-income countries, improving public investment productivity or increasing private sector participation is particularly relevant to arrest the trend decline in public capital stocks.\n  - Strengthen supportive fiscal institutions:\n    - Effective decentralization frameworks and expenditure rules can help promote spending control.\n  - Build political consensus and communication:\n    - Expenditure reforms are more likely to be successful and long-lasting if supported by wide political consensus.\n    - A broad communications strategy is important because political uncertainty and social pressures can derail reforms."
    },
    {
      "heading": "Empirical and trend notes",
      "content": "- Charts referenced in the analysis:\n  - Chart 1. Upward Trends in General Government Spending (percent of GDP)\n  - Chart 2. Downward Trends in Government Capital Stock\n\nSource: The Future of the State Revisited: Reforming Public Expenditure, Sanjeev Gupta and Martine Guerguil, April 16, 2014.\n\n---\n\n Content in this bundle\n\n- 再论国家的未来：改革公共支出; iMFdirect 博客;作者：Sanjeev Gupta 和 Martine Gerguil; 2014年4月16日\n  - 再论国家的未来：改革公共支出; iMFdirect 博客;作者：Sanjeev Gupta 和 Martine Gerguil; 2014年4月16日 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - 再论国家的未来：改革公共支出; iMFdirect 博客;作者：Sanjeev Gupta 和 Martine Gerguil; 2014年4月16日 (PDF){rel=\"external\" type=\"application/pdf\"}\n- 加盟国の将来を再考する: 歳出改革; サンジーブ・グプタ、マーティン・ガーギル; iMFdirect ブログ 2014年4月16日掲載\n  - 加盟国の将来を再考する: 歳出改革; サンジーブ・グプタ、マーティン・ガーギル; iMFdirect ブログ 2014年4月16日掲載 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - 加盟国の将来を再考する: 歳出改革; サンジーブ・グプタ、マーティン・ガーギル; iMFdirect ブログ 2014年4月16日掲載 (PDF){rel=\"external\" type=\"application/pdf\"}\n- Пересмотр будущего государства: реформа государственных расходов\n  - Пересмотр будущего государства: реформа государственных расходов (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Пересмотр будущего государства: реформа государственных расходов (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- Fiscal Monitor report\n- https://www.imf.org/wp-content/uploads/2014/04/chart-11.jpg\n- room to raise additional revenue through taxes is limited\n- https://www.imf.org/wp-content/uploads/2014/04/chart-21.jpg\n\nSource: https://www.imf.org/en/blogs/articles/2014/04/16/the-future-of-the-state-revisited-reforming-public-expenditure"
    }
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    "Authors: Sanjeev Gupta, MartineGuerguil",
    "Published: April 16, 2014",
    "Authors: Sanjeev Gupta, Martine Guerguil",
    "Date: April 16, 2014",
    "Theme: Drivers of rising government spending and options for public expenditure reform in the wake of the global financial crisis.",
    "Framing points:",
    "Long-run economic hypotheses supported by IMF analysis:",
    "Implication: In the absence of mitigating measures, pressure on governments to spend will continue, though possibly at a slower pace as income and productivity growth level off.",
    "Key quantitative projection:",
    "Population aging, which will increase the cost of providing health care and pensions.",
    "Normalization of monetary policy, which will increase debt payments when interest rates eventually start to rise.",
    "Overarching objective:",
    "Country-differentiated approaches:",
    "Common policy elements and recommendations:",
    "Charts referenced in the analysis:",
    "**再论国家的未来：改革公共支出; iMFdirect 博客;作者：Sanjeev Gupta 和 Martine Gerguil; 2014年4月16日**",
    "**加盟国の将来を再考する: 歳出改革; サンジーブ・グプタ、マーティン・ガーギル; iMFdirect ブログ 2014年4月16日掲載**",
    "**Пересмотр будущего государства: реформа государственных расходов**",
    "[Fiscal Monitor report](http://www.imf.org/external/pubs/ft/fm/2014/01/fmindex.htm)",
    "[https://www.imf.org/wp-content/uploads/2014/04/chart-11.jpg](https://www.imf.org/wp-content/uploads/2014/04/chart-11.jpg)",
    "[room to raise additional revenue through taxes is limited](http://www.imf.org/external/pubs/ft/fm/2013/02/fmindex.htm)",
    "[https://www.imf.org/wp-content/uploads/2014/04/chart-21.jpg](https://www.imf.org/wp-content/uploads/2014/04/chart-21.jpg)"
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