- We use the Public Finances in Modern History Database assembled by Paolo Mauro, Rafael Romeu, Ariel J Binder and Asad Zaman to analyze the evolution of key public finance variables over time.
- Fiscal variables include government gross debt, interest expense, primary expenditure, total expenditure, and revenue, all as percentage of GDP.
- Using the whole database, Panel data regressions show that government gross debt is positively correlated with interest expense and primary expenditure, while it is negatively correlated with revenue and real GDP growth.
- Meanwhile, with the Panel data regression, primary expenditure is negatively correlated with interest expense and real GDP growth, while it is positively correlated with revenue and gross government debt.
- In addition, we show how government gross debt, interest expense, primary expenditure, total expenditure, and revenue behaved in the 1970 to 2021 period.
- We show mean and median values for each variable, and we show the evolution of percentage ranges over time for 1970, 1980, 1990, 2000, 2010 and 2021.
- We provide information on the number of countries in which each variable increased or decreased from 1970 to 1980, from 1980 to 1990, from 1990 to 2000, from 2000 to 2010 and from 2010 to 2021.
- In addition, for each country in the sample, we show how each variable compared in 2000, 2010 and 2021.
- We observe that after an important reduction from 2000 to 2010, gross government debt has been increasing over time, especially in the 2019 to 2021 period in response to the fiscal deficits due to COVID-19. From 2000 to 2021, gross government debt, as a percentage of GDP, increased in 93 countries, while it decreased in 49.
- According to Eichengreen et al. (2019), debt in the 20th century resulted from major wars, recessions, banking panics, and financial crises and the public-policy responses to those events, and from increasing economic development initiatives led by national governments.
- Government interest expense rose from 1970 to 1990, but decreased in 2000 and 2010, while for 2021, despite the presence of negative long-term real interest rates, it increased mainly due to the larger debt. From 2000 to 2021, government interest expense, as a percentage of GDP, increased in 50 countries, while it decreased in 92.
- Primary expenditure has been increasing overtime in line with Yared (2019) that points out that in the last four decades, debt has increased because of an aging population, rising political polarization, and rising electoral uncertainty that have pushed towards granting pensions, health care, and other often unfunded social services. From 2000 to 2021, primary expenditure, as a percentage of GDP, increased in 123 countries, while it decreased in 19.
- The augmenting effect of primary expenditure has caused that from 2000 to 2021, total expenditure as percentage of GDP, increased in 116 countries and decreased in 27.
- Government revenue has also been increasing over time. From 2000 to 2021, government revenue, as a percentage of GDP, increased in 88 countries, while it decreased in 55 countries.
- Therefore, the public sector has been increasing its relative size in the economy.