Vi. Enhancing the Cost Effectiveness of Public Spending

Curbing the growth in public spending and raising its effectiveness... Public spending rose steadily as a share of GDP in the three decades to the mid1990s, but this trend has since abated. The spending pressures stemming from the continued expansion of social programmes have been partly compensated by transient or one-off factors. Pressures on public spending, however, appear likely to intensify, in particular as a consequence of ageing populations. Since most OECD economies have very little scope for raising taxation or debt to finance higher spending, reforms to curb the growth in public spending while raising its cost effectiveness are now required. This process will involve difficult choices as to the allocation of resources, the more so that public spending programmes also have important roles to play in pursuing economic growth and equity objectives. This paper presents a reform strategy for progress in this direction, based on detailed country reviews for over two-thirds OECD countries.1 Three main areas for action are identified: the budget process; management practices and the use of market mechanisms in the delivery of public services.