Abhatoo - Centre Nationale de Documentation

This paper first presents information on trends and composition of social expenditure across the OECD. Gross public social expenditure on average across OECD increased from 16% of GDP in 1980 to 21% in 2005, of which public pensions (7% of GDP) and public health expenditure (6% of GDP) are the largest items. This paper then accounts for the effects of the tax system and private social expenditure which leads to a greater similarity in social expenditure-to-GDP ratios across countries and to a reassessment of the magnitude of welfare states. After accounting for the impact of taxation and private benefits, social expenditure (1) amounts to over 30% of GDP at factor cost in Belgium, Germany, and France and (2) ranges within a few percentage points of each other in Austria, Canada, Denmark, Finland, Italy, the Netherlands, Portugal and the United States.

This working paper first discusses methodological, classification and data issues regarding the OECD Social Expenditure database (SOCX). The quality of SOCX has been improved towards greater coverage and consistent treatment of: i) spending on early care and education services for children up to 6 years of age; ii) spending on long-term care as reported by social policy and health authorities; iii) spending on pensions to former public servants in line with the System of National Accounts; and iv) severance payments paid on retirement.

The paper also discusses gross (before tax) spending trends by broad social policy area. However, the vast amount of detailed information on social support by social expenditure programme is too large to be discussed here in a comprehensive manner. Overview spending data are available via “OECD.Stat” (see Annex 4 and www.oecd.org/els/social/expenditure) for the 1980-2005 period.

This paper then discusses the effect of government intervention through the tax system on social spending, including: i) direct taxes and social security contributions on cash transfers, ii) indirect taxes on goods and services bought by benefit recipients; and iii) tax breaks with a social purpose. The latter concern both tax advantages similar to cash benefits and tax concessions aiming to stimulate the provision of private social benefits. This document refines the methodological framework previously developed in earlier editions for net social expenditure and presents indicators based on a common questionnaire for twenty-six OECD countries for which information on taxation of benefits is now available.

Accounting for the effect of the tax system and private social expenditure leads to greater similarity in social expenditure-to-GDP ratios across countries and to a reassessment of the magnitude of welfare states. After accounting for the impact of taxation and private benefits, social expenditure amounts to over 30% of GDP at factor cost in Belgium, Germany, and France; social expenditure also ranges within a few percentage points of each other in Austria, Canada, Denmark, Finland, Italy, the Netherlands, Portugal and the United States.