Many economic policy arguments portray the public sector as having grown to be very large – perhaps even excessively so. This factual claim sets the groundwork for policy reforms designed to shrink the public sector. How big are public sectors today? Are they unprecedentedly large, as austerity advocates often claim? Or have governments been downsized in the era of neoliberalism? In this analysis, we examine changes in government expenditures since the 19th century.
This analysis uses government expenditures (% GDP) data from Mauro et al.’s (2013)1 Public Finances in Modern History database2 This metric gives a rough estimate of how much the government spends relative to economic production. A higher number suggests that the government is larger relative to the economy under its jurisdiction.
Today’s U.S. government are large by historical standards. Public sectors are several times larger than they were before the Great Depression and World War II. Since the 1950s, the public sector appears to have been growing steadily. Growth was considerable during the 1960s through mid-1980s, and experience a slowdown during the 1990s and 2000s. After 2007, US public expenditures rose rapidly. Figure 1 shows changes in the ratio of government expenditures to GDP since 1800 for the United States:
Note that, even during the Civil War and WWI, government expenditures were a fraction of their present-day levels. Spending in 2013 was nearing peak spending levels during World War II. Since 2013, government expenditure to GDP levels have fallen to around 38% (not depicted in these data).
US is not Unique. The U.S. is not unique. It’s experience is typical of highly developed countries. Consider Figure 2 (below), which shows similar plots of several other countries for which long-term data was available. All countries experienced considerable growth in government after World War II, but the pace of that growth had been arrested by the 1980s:
Note that, while the US figure gives a stronger indication of a post-1980 growth trajectory, its overall levels are lower relative to most of these other countries.
Governments grew considerably after the Great Depression and World War II. This growth seemed particularly intense in the 1960s and 1970s, but eventually this growth was halted in the 1980s. The data suggest that government spending has been reasonably stable in most countries since 1980, although spending did rise temporarily in the US after their economic crisis. So, compared to 19th century America, the US has a huge and expansive government. By modern standards, its government is comparatively small, and government spending has been relatively stable across rich countries since then.
- Mauro, Paolo, Rafael Romeu, Ariel Binder, and Asad Zaman (2013) “A Modern History of Fiscal Prudcence and Profligacy” IMF Working Paper WP/13/5 https://www.imf.org/external/pubs/ft/wp/2013/wp1305.pdf↩
- Distributed by the International Monetary Fun as “Public Finances in Modern History Database, 1800 – 2011”, data and documentation available for download at https://www.imf.org/external/np/fad/histdb/ and on this project’s online depository↩