How Expensive is the Welfare State?

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 privatesocial expenditure which leads to a greater similarity in social expenditure-to-GDP ratios acrosscountries and to a reassessment of the magnitude of welfare states. After accounting for the impactof taxation and private benefits, social expenditure (1) amounts to over 30% of GDP at factor cost inBelgium, Germany, and France and (2) ranges within a few percentage points of each other inAustria, Canada, Denmark, Finland, Italy, the Netherlands, Portugal and the United States.