GOLDEN GROWTH
Figure 7.12: Private spending makes the United States the biggest health care spender in the world (private and public health spending, percentage of GDP 1995-2009)
Note: “EU cand.” refers to EU candidate countries and “E. prtn.” refers to EU eastern partnership countries. Source: World Bank staff calculations, based on WHO Global Health Expenditure Database.
The issue is not just about measuring output. The uncertainty about public sector output might make it easier for bureaucracies to appropriate some of the surplus that otherwise would belong to taxpayers, at least as long as politicians and citizens cannot exercise appropriate control. Although measuring government output is tricky, economists often adopt a methodology originally designed for firms. Taking education and health as examples, the idea is to relate the amount of public resources to outputs and outcomes, such as education enrollment rates or life expectancy. The results show that differences in performance and efficiency across countries are substantial; that there is no systematic link from more government spending to higher efficiency; and that public sector efficiency relates systematically to income levels, institutional factors, and demographic trends (Hauner and Kyobe 2010; Tanzi and Schuknecht 1997 and 2000; Alfonso, Schuknecht, and Tanzi 2005; Afonso, Schuknecht, and Tanzi (2010); Mandl, Dierx, and Ilzkovitz 2008; Estache, Gonzalez, and Trujillo 2007). Analyzing public sector performance and efficiency is not easy. In particular, the link between public spending and social outcomes is often tenuous. Public spending is only one among many factors explaining public sector performance, including a host of economic, social, and institutional variables. In addition, comparing public expenditure ratios across countries assumes that public sectors have a homogenous production function. Nevertheless, these attempts to measure public sector performance serve a purpose. Comparisons of the performance of public sectors are inevitable, so this is best done in a rigid and transparent fashion rather than using more or less ad hoc approaches. The following sections present three ways to analyze public sector performance. First, we link public spending on education and health to secondary school enrollment rates and maternal mortality ratios. Then, we illustrate potential inefficiencies in education using examples from Eastern Europe. Finally, we discuss how governments have adjusted spending on pensions and other social transfers in response to population aging.
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