Europe suffers from two major handicaps: poor economic growth and high unemployment. In Europe Needs To Trim Its Excessive Fiscal Burden, Anders Åslund argues that Europe needs more structural reforms to solve these problems. Åslund addresses some fundamental questions on excessive fiscal burden: Why have public expenditures become higher in the EU than in other countries at a similar level of economic development? How have varying levels of public expenditures impacted economic growth? What level of public expenditures is desirable and how can the desired level be achieved?
Key Findings
– On average, European Union countries have a 10 percent of GDP larger share of public expenditures than other developed nations
– Government expenditures on core public goods benefit economic growth, but their marginal utility declines when exceeding 40 percent of GDP
– The best way of cutting public expenditures is to eliminate or minimize what is not desired, such as subsidies that reduce economic welfare and efficiency
– The worst kind of cuts are even cuts of all expenditures, because this does not structurally improve the public sector and all services are likely to deteriorate
– Four groups of public expenditures should be slimmed down: public pensions, social benefits and transfers, public debt service, and public procurement
– Public expenditures of 35-42 percent of GDP appear desirable for an EU country
This publication is part of the EuroGrowth Publication Series, which is part of the Atlantic Council’s EuroGrowth Initiative. The EuroGrowth Initiative is made possible by the generous support from Beretta, the European Investment Bank, JPMorgan Chase & Co., United Parcel Service, Inc. (UPS), Ambassador Stuart Eizenstat, and Ambassador C. Boyden Gray.