Figure 1. Long-run Trajectory of the Size of Public Spending in Developed Countries and Latin America, 1918–2008 (general government expenditure as a percentage of GDP) 50% 45.0%
45%
42.9%
43.0%
43.5%
40% 35%
30%
28.0%
19.6%
20% 15% 10%
24.1%
23.8%
25%
17.9% 17.9%
13.2% 9.9%
10.1%
11.5%
12.7%
19.2%
17.5%
25.1%
19.1%
13.7% 13.7% 14.3%
5% 0% 1918 1920 1937 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1996 2002 2008
Latin America
Developed countries
Sources: Developed countries: Tanzi (2005), on the basis of figures of Tanzi and Schuknecht (2000); Latin America; author’s estimates on the basis of data from OXLAD and IMF.
Thus, while intuitively attractive, the notion of permanent income in public finance is considerably less developed than in theories about private consumption, which are well documented in the literature. As a reflection, permanent income has so far been applied to a rather restrictive set of cases in public finance, namely to deal with revenues from exhaustible natural resources. 3.1.2. Measures of Fiscal Discretion Separating the effects of discretionary policy decisions from those deriving from the fiscal budget has perhaps been the most frequently sought objective by indicators proposed in the literature on public finance. This goal could also be termed an attempt to separate “endogenous” effects (arising from policy decisions) from “exogenous” effects on revenues and expenditures (those not under government control).
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