Published on Monday, March 4, 2024

Spain | Public sector size and growth

The size of Spain's public sector and its impact on economic growth is a controversial issue, with opposing views and biases that can affect the interpretation of the evidence.

Key points

  • Key points:
  • Just as harmful to economic growth is a public sector that is too small, resulting in insufficient provision of public services essential for economic, political, and social progress, as one that is too big, resulting in an administration that exacts an extremely high cost on economic activity.
  • There is a narrow corridor between having a government that is too weak and one that is too strong and inefficient. Deviation from the more virtuous path not only jeopardizes political freedom, but also economic prosperity and social well-being.
  • Economic research indicates that certain factors (e.g., the quality of public institutions, the efficiency in expenditure and taxation, or the level of public debt) determine the relationship between public sector size and economic growth.
  • Some European countries have large public sectors and high per capita income levels, so the quality of their public institutions is also high, with positive effects on society's well-being. However, growing the public sector beyond a certain size can be counterproductive in others with relatively inefficient public sectors.
  • Enhancing the quality of the public sector and spending more efficiently is crucial in today's environment of fiscal consolidation and investment requirements in areas such as defense, and energy and digital transitions.

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