Government expenditures/revenues – different cultures

The debate tends to focus on budget deficits. More interesting is to compare the level of government expenditures and revenues among the Eurozone as well as EU countries.

On average, the governments of EU countries spent about 51% of GDP and had revenues of 45% of GDP in 2010. Individual countries deviated from the average quite significantly.

Some countries (particularly in Scandinavia) had high expenditures (close to 55%) but they were also prepared to pay high taxes. There is not one country which limited expenditures to 35% or less, but there are countries (mostly in the South) whose revenue base is low (about 35%).

The real problem are countries which have a low revenue but a high expenditure base. Greece is high – but not at the top – as regards expenditures. Greece is low – and close to the bottom – as regards revenues.

Greece’s government expenditures were 50% of GDP, slightly below the EU average. That may come as a surprise to all those who critize Greece for uncontrolled government spending.

With 39% of GDP, Greece’s revenue base was far too low in comparison with her expenditure base. The deficit was, consequently, 11%.

If Greece had had the average EU revenue base of 45%, the budget deficit would have been only 5%. Here one has to consider that Greece’s interest expense (included in government expenditures) is enormous!

If Greece had had Austria’s revenue base of 48% of GDP, her budget deficit – despite enormous interest costs – would have been down to 2%.

Now here is the million-dollar-question: why should foreign tax payers come up with the money to cover Greek government expenditures which money Greek tax payers are not prepared to come up with?

Answers are welcome!

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