What better way to mark the eve of the Canadian Civic
Holiday weekend than with a quick civically engaged overview of the growth of
the public sector from a historical perspective.  In his 2011 Governments
versus Markets: The Changing Economic Role of the State, Vito Tanzi
provides a table on general government expenditures as a percent of GDP for
selected countries and years from 1870 to 2007. 

I’ve taken Tanzi’s numbers and presented them in the
accompanying Figure I.  One
modification I have made is for the numbers for Canada as Tanzi only begins
those in 1920.  I’ve gone back and
obtained GDP estimates for Canada for 1870 and 1913 as well as made estimates
for general government spending. 
Federal government spending was simple enough – I got those numbers from
W. Irwin Gillespie (1990) Tax, Borrow
& Spend: Financing Federal Spending in Canada , 1867 to 1990.  Provincial and local spending were a
more difficult issue. 

Figure 1

*Note that Canada in 1870 and 1913 are my own estimates.

As for the transfer partners, I was able to dig out Moore
and Perry’s 1966 Canadian Tax Foundation monograph, The Financing of Canadian Federation: The first hundred years and
obtained the value of federal transfers for the provinces in 1873 and 1915 from
a table as well as their share of provincial revenues.  This allowed for an estimate of
total provincial revenue in those years, which I used as an estimate of what they spent and assigned them as such to the estimate of Canadian general government spending for the purposes of the
Figure for 1870 and 1913. As for local government spending, the Moore and Perry figures
show it was approximately equivalent to provincial spending in the immediate
post World War II era so I decided to set local government spending in 1870 and
1913 as the same as provincial spending. 
This probably means that spending in 1870 and 1913 may be either over or
underestimated depending on whether pre 1900 local government spending was
greater or less than provincial spending.

The results? 
Well, the figure paints what a first glance seems to be a very simple
picture of an expanding public sector over time as measured by the public
expenditure share of GDP.  In 1870,
the average public sector size for the countries in the figure was just under
11 percent and by the eve of the First World War had crept up to about 13
percent.  Public sector size
reaches 20 percent by 1920 and on the eve of the Second World War is about 24
percent.  It is the post World War
Two period that sees the most robust expansion.  Between 1937 and 1990, the average rises from 24 percent to
43 percent and then abates somewhat to approximately 42 percent by 2007 – the
eve of the Great Recession.

There are some interesting national variations in this small
set of countries.  In 1870, the
smallest public sectors were in the Nordic countries of Sweden and Norway while
the largest public sectors belonged to Switzerland and Australia at 16.5 and
18.3 percent respectively.  By
2007, the smallest public sectors also belonged to Switzerland and Australia at
35.4 and 34.9 percent respectively. 
Sweden, which had the smallest public sector of this set of countries in
1870 – at 5.7 percent – was the largest in 1990 at 59.1 percent and remained
tied with France for the number one spot in 2007 at 52.6 percent.

The 1990s marked the end of the general expansion of public sector size
in this set of countries at least in average terms but there is again variation across countries as some countries shrank their public sectors while others expanded.  The biggest percentage drops in the
government expenditure to GDP ratio for these countries were for Norway and
Canada. Norway drops from 55 to 41 percent while Canada drops from 46 to 39
percent.  An expanding GDP due to
oil resource revenues is undoubtedly a factor in the Norwegian case.  Interestingly enough, public sector
size in the United States, the United Kingdom and Japan grows from 1990 to
2007.  The biggest percentage
increase in public sector size between 1990 and 2007 is for Austria, which saw
the government expenditure to GDP ratio grow by 24 percent – from about 39 to
48 percent.  These dynamics may be
easier to see in a different plot of the same numbers – see the second figure.

Figure 2

Obviously, there is no one size fits all international pattern when it comes to the
historical ebb and flow of public sector spending and public sector size. Happy
long weekend!

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