Unproductive Public Expenditures
A Pragmatic Approach To Policy Analysis

Appendix: Patterns of Government Expenditure by Country Groups

International comparisons of public expenditure composition in relation to economic and social indicators can provide a useful basis for addressing imbalances in the use of public resources.33 While the composition of spending at a given time does not indicate public expenditure efficiency, changes in the composition or deviations from an international norm in relation to indices measuring the achievement of objectives (for example, with respect to literacy and mortality rates) may suggest a potential scope for action. This approach complements rather than substitutes for the sort of analysis described in the pamphlet.

Table A1 provides a profile of central government expenditures during 1983­1990 for 80 countries as reported in the Government Finance Statistics Yearbook. The table was constructed by taking weighted averages based on conversion to U.S. dollars using official exchange rates. Countries were grouped into 18 low-income countries, with per capita incomes below $600 in 1990; 36 middle-income countries, consisting of nations with per capita incomes between $600 and $4,500; and 26 high-income countries. These country groups differ only slightly from the IMF's world economic outlook classifications.

Note, however, that regulations and price controls make it difficult to draw firm conclusions about government activities from analysis based on available government expenditure data. For example, in some middle-income and low-income countries with grossly distorted prices, implicit subsidies may exceed budgetary subsidies. Similarly, the wage bill as reported in the budget data may underestimate true labor costs on account of various in-kind entitlements.

Despite these limitations, Table A1 suggests a number of patterns. With regard to economic components, middle-income and low-income countries allocate large amounts of central government resources for capital expenditure and net lending, while high-income countries spend large amounts on subsidies and transfers. Transfers include social security payments. It is also notable that middle-income countries spend relatively large amounts on wages and salaries, although Table A2 suggests that the data for the general government may indicate a different pattern.

With regard to functional components, a notable difference between high-income countries and other countries is the former group's spending of large amounts on social security and welfare (under the category "subsidies and transfers" in the economic components). The burden of military expenditures for low-income countries exceeds that for middle-income countries, and the central governments in low-income countries spend very small amounts on health and social security.34

Both the level and composition of public expenditure would be different if the data covered all entities of the public sector, including extrabudgetary institutions and local governments. To provide some indication of general government expenditure composition, data for a much-reduced number of countries and years are shown in Table A2. It should be noted, in particular, that the sample of low-income countries includes only three countries. Data for the central government and the general government in Tables A1 and A2 are thus not strictly comparable because the sample countries and sample years differ. The change in the expenditure composition resulting from extending the coverage from the central government to the general government is shown in Tables A2 and A3, both of which are based on the same set of countries and years. Tables A2 and A3 point to the importance of local governments in social sector programs, including health, education, social security and welfare, and housing in all countries. It is notable, however, that low-income countries allocate relatively small amounts of resources for health, social security, and housing even at the general government level.35

Table A1. Share of Central Government Expenditure in GDP and in Total Expenditure for 80 Countries, 1983­90
(In percent)
  High-Income1
 Middle-Income2
 Low-Income3
 All Countries
  GDP Total
expenditure		 GDP Total
expenditure		 GDP Total
expenditure		 GDP Total
expenditure
Expenditure by economic type 31.4 100.0 26.6 100.0 21.6 100.0 30.4 100.0
  Current expenditure 29.1 92.9 20.9 79.0 14.0 64.7 27.5 90.5
    Goods and services 8.4 26.9 8.8 33.3 5.4 25.1 8.3 27.4
      Wages 3.7 11.9 5.5 21.2 2.5 11.5 3.9 12.8
      Other goods and services 4.7 15.0 3.2 12.2 2.9 13.6 4.5 14.6
    Interest 3.6 11.5 5.0 18.6 3.0 14.0 3.8 12.4
    Subsidies and transfers 17.1 54.5 7.2 27.1 5.5 25.2 15.4 50.7
  Capital expenditure 1.8 5.7 3.8 14.5 4.3 19.9 2.2 7.1
  Lending minus repayments 0.4 1.3 2.3 8.0 3.3 15.2 0.8 2.5
Expenditure by function 4 30.9 100.0 24.3 100.0 18.4 100.0 29.5 100.0
  Defense 4.4 14.2 2.0 8.2 2.8 15.3 4.0 13.6
  Education 1.6 5.0 2.8 11.4 1.0 5.4 1.7 5.7
  Health 3.7 12.0 1.2 5.0 0.4 2.2 3.3 11.0
  Social security and welfare 10.6 34.4 3.6 14.9 0.1 0.8 9.3 31.5
  Housing 0.7 2.2 0.6 2.4 0.7 3.8 0.7 2.3
  Economic services 2.8 8.9 4.8 19.6 4.6 25.0 3.1 10.5
  Other government services 3.8 12.2 4.4 18.1 5.7 30.8 3.9 13.2
  Interest 3.4 11.1 5.0 20.2 3.0 16.3 3.6 12.2
Number of countries 26 26 36 36 18 18 80 80
Source: IMF, Government Finance Statistics Yearbook, 1993.
Note: The sums of the components do not necessarily equal the totals because some minor components are not shown.
1Weighted average of data for Australia, Austria, Bahrain, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Israel, Italy, Korea, Kuwait, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, United Kingdom, and United States.
2Weighted average of data for Argentina, Barbados, Bolivia, Botswana, Brazil, Chile, Colombia, Costa Rica, Cyprus, Dominican Republic, Egypt, El Salvador, Fiji, Guatemala, Hungary, Iran, I.R. of, Jordan, Malaysia, Malta, Mauritius, Mexico, Morocco, Panama, Papua New Guinea, Paraguay, Peru, Philippines, Romania, Swaziland, Thailand, Tunisia, Turkey, Uruguay, Vanuatu, Venezuela, and Zimbabwe.
3Weighted average of data for Burkina Faso, Cameroon, The Gambia, Ghana, India, Indonesia, Kenya, Lesotho, Liberia, Malawi, Maldives, Mali, Nigeria, Pakistan, Sierra Leone, Sri Lanka, Zaïre, and Zambia.
4Does not include lending minus repayments.

Table A2. Share of General Government Expenditure in GDP and in Total Expenditure for 18 Countries
(In percent; two-year averages in 1983­90 period)

  High-Income1
 Middle-Income2
 Low-Income3
 All Countries
  GDP Total
expenditure		 GDP Total
expenditure		 GDP Total
expenditure		 GDP Total
expenditure
Expenditure by economic type 39.1 100.0 24.1 100.0 27.8 100.0 38.3 100.0
  Current expenditure 36.2 92.5 19.0 79.0 17.8 64.2 35.0 91.4
    Goods and services4 18.0 46.0 8.5 35.1 9.3 33.6 17.4 45.5
      Wages 8.9 22.7 2.9 12.2 5.6 20.3 8.6 22.5
      Other goods and services 8.5 21.8 4.1 17.0 3.7 13.3 8.2 21.5
    Interest 4.4 11.2 1.0 4.3 3.2 11.4 4.2 11.1
    Subsidies and transfers 13.8 35.3 9.5 39.5 5.3 19.2 13.3 34.9
  Capital expenditure 2.9 7.4 4.4 18.1 5.6 20.2 3.0 7.9
  Lending minus repayments -- -- 0.2 0.8 3.8 13.7 0.2 0.5
  Adjustment for reporting difference between intergovernment grantsand transfers -- 0.1 0.5 2.2 0.5 1.9 0.1 0.2
Expenditure by function5 39.1 100.0 23.9 100.0 23.9 100.0 38.1 100.0
  Defense 4.7 12.0 1.5 6.5 3.1 12.8 4.5 11.9
  Education 4.9 12.5 2.4 10.1 3.3 13.7 4.8 12.5
  Health 5.1 13.1 1.7 7.0 0.8 3.5 4.8 12.7
  Social security and housing 11.3 28.8 7.0 29.3 2.0 8.2 10.8 28.2
  Economic services 3.7 9.4 6.4 26.7 6.5 27.3 3.9 10.2
  Other government services6 5.1 13.1 3.9 16.2 5.1 23.1 5.1 13.4
  Interest 4.4 11.2 1.0 4.3 3.2 11.4 4.2 11.1
Number of countries 8 8 7 7 3 3 18 18
Source: IMF, Government Finance Statistics Yearbook, 1993.
Note: The sums of the components do not necessarily equal the totals because some minor components are not shown.
1Weighted average of data for Australia, Canada, Denmark, Germany, Israel, Luxembourg, United Kingdom, and United States.
2Weighted average of data for Argentina, Chile, Hungary, Panama, Romania, Swaziland, and Zimbabwe.
3Weighted average of data for India, Indonesia, and Malawi.
4"Wages" and "Other goods and services" do not add up to "Goods and services" because Australia, Argentina, and Panama do not have a breakdown of "Wages" and "Other goods and services."
5Excludes net lending.
6Includes unallocated adjustments and unclassified expenditure.

Table A3. Share of Central Government Expenditure in GDP and in Total Expenditure for 18 Countries
(In percent; two-year averages in 1983­90 period)
  High-Income1
 Middle-Income2
 Low-Income3
 All Countries
  GDP Total
expenditure		 GDP Total
expenditure		 GDP Total
expenditure		 GDP Total
expenditure
Expenditure by economic type 25.9 100.0 19.0 100.0 22.2 100.0 25.5 100.0
  Current expenditure 24.6 95.1 15.7 83.2 13.9 62.8 23.9 93.7
    Goods and services 7.8 30.3 5.4 28.5 4.9 22.0 7.6 29.9
      Wages4 2.8 10.7 2.2 11.6 2.4 10.9 2.7 10.7
      Other goods and services 4.9 18.8 3.2 16.9 2.5 11.1 4.7 18.5
    Interest 3.3 12.9 0.9 4.6 3.0 13.6 3.2 12.7
    Subsidies and transfers 13.4 52.0 9.4 50.1 6.0 27.1 13.0 51.0
  Capital expenditure 1.2 4.7 3.3 16.8 4.2 18.9 1.4 5.5
  Lending minus repayments -- -- -- -- 4.1 18.3 0.2 0.8
Expenditure by function5 25.8 100.0 19.0 100.0 18.2 100.0 25.3 100.0
  Defense 4.7 18.2 1.4 7.5 3.0 16.3 4.5 17.9
  Education 1.0 3.7 1.2 6.1 0.8 4.2 1.0 3.8
  Health 3.4 13.2 1.2 6.4 0.3 1.9 3.2 12.8
  Social security and housing 9.0 35.0 5.9 31.0 0.9 4.9 8.6 34.0
  Economic services 2.0 7.9 5.5 28.8 4.2 23.1 2.2 8.8
  Other government services 2.3 9.1 2.9 15.6 6.0 35.9 2.5 10.0
  Interest 3.3 12.9 0.9 4.6 3.0 13.6 3.2 12.7
Number of countries 8 8 7 7 3 3 18 18
Source: IMF, Government Finance Statistics Yearbook, 1993.
Note: The sums of the components do not necessarily equal the totals because some minor components are not shown.
1Weighted average of data for Australia, Canada, Denmark, Germany, Israel, Luxembourg, United Kingdom, and United States.
2Weighted average of data for Argentina, Chile, Hungary, Panama, Romania, Swaziland, and Zimbabwe.
3Weighted average of data for India, Indonesia, and Malawi.
4Australia does not have data for wages.
5Excludes net lending.

33 See, for example, Tait and Heller (1982) and Heller and Diamond (1990).
34 Note that high-income countries include not only the countries classified as "industrial" for the world economic outlook exercise but also some of those classified as "oil exporting" and "newly industrialized."
35 For each expenditure component, the ratio of expenditure to GDP for the general government should exceed that for the central government. The exceptions are a few components, such as "subsidies and transfers" and "net lending," which, because they include central government transfers and net lending to local governments, may be smaller for the general government than for the central government if central government transfers and net lending to local governments are spent on components other than transfers and net lending by local governments.

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