Cut the Spending, Spare the Poor

PARIS – Why do some governments spend more than others? The question is more complicated than it appears, especially in the case of European governments.

The answer may look obvious when comparing, say, Denmark (where public spending, excluding interest payments on debt, amounted to 58% of GDP in 2012) and the United States (where the same number was 35%). Extensive public services and a comprehensive welfare state appear to be the indisputable explanation. The data seem to vindicate German Chancellor Angela Merkel’s famous statement that Europe’s problem is that it accounts for 7% of the world’s population, 25% of its GDP, and 50% of its social spending.