Structure of government expenditures by economic transaction
Public expenditure can be classified by the economic nature of the transaction, for example payments of civil servants’ wages (employee compensation), financing subsidies, cash transfers such as pensions or unemployment benefits (social benefits), or the procurement of goods or services from the private sector that are used as inputs in the government production (intermediate consumption). This classification is ancillary to government expenditures by function, as it distinguishes broader categories of the government’s production function and its relationship with the economy.
According to this classification, in 2019, on average, social benefits represented 40.6% of all government expenditures among OECD countries. The highest levels are observed in Japan (55.1%), Germany (54.3%) and the Netherlands (49.7%) while the lowest were in Mexico (10.8%), Iceland (16.8%) and Israel (23%). Between 2007 and 2019 these transactions increased by 3.3 p.p. on average, with the greatest increase taking place in Korea (12.1 p.p.).
The second largest spending category is the compensation of employees, which amounted to 21.7% of total spending on average in 2019. Spending on employee compensation is highest in Iceland (32.7%) and Denmark (30.3%) and smallest in Colombia (16%) and Japan (13.9%). Between 2007 and 2019 this category fell by 0.5 p.p. on average. The most significant reductions were observed in Mexico (6.6 p.p), Australia (4.3 p.p) and Portugal (4.2 p.p.) while the largest increases took place in the Slovak Republic (3.8 p.p), the Czech Republic (3.7 p.p.) and Iceland (2.1 p.p.)
Among the 22 OECD-EU countries with available data, the share of spending on social benefits fell from 46.1% of total expenditure in 2019 to 45.5% in 2020. Compensation of public employees also fell during this period, from 21.7% to 20.5%. Such reductions, however, should be analysed carefully as other spending categories (i.e. subsidies and capital expenditures) increased significantly and added more to the increase of total spending. For example, subsidies to enterprises have been crucial in enabling economies to cope with the effects of the COVID-19 pandemic, and these have increased from 3.1% of total spending to 5.2%. Likewise, capital expenditures, including capital transfers and investments, increased from 8.5% to 9.2% of total spending (Table 2.29).
Expenditures data are derived from the OECD National Accounts Statistics (database), which are based on the System of National Accounts (SNA), a set of internationally agreed concepts, definitions, classifications and rules for national accounting. The 2008 SNA framework has been implemented by all OECD countries (see Annex A for details on reporting systems and sources). Expenditures encompass the following economic transactions: intermediate consumption (i.e. goods and services that are consumed in a production process within the economic territory and during the accounting period); compensation of employees; subsidies; property income (mainly including interest spending); social benefits (consisting of social benefits other than social transfers in kind and of social transfers in kind provided to households via market producers); other current expenditures (mainly current transfers but also other minor expenditures as other taxes on production, current taxes on income and wealth etc. and the adjustment for the change in pension entitlements) and capital expenditures (i.e. capital transfers and investments). All these transactions at the level of general government are recorded on a consolidated basis (i.e. transactions between levels of government are netted out).
Further reading
OECD (2021), OECD Economic Outlook, Interim Report March 2021, OECD Publishing, Paris, https://doi.org/10.1787/34bfd999-en.
OECD (2019), Budgeting and Public Expenditures in OECD Countries 2019, OECD Publishing, Paris, https://doi.org/10.1787/9789264307957-en.
Figure notes
2.29. Data for Chile are not available. Data for Turkey are not included in the OECD average due to missing time series. Data for Japan, Brazil and Russia are for 2018 rather than 2019.
G.20. (Structure of central government expenditures by economic transaction, 2019 and 2020) is available online in Annex G.