European Economy. Economic Papers. Germany's growth performance in the 1990's

Table 2.5: Development of General Government Expenditures (in % of GDP)
91
92
93
94
95
96
97
98
99
00
Expenditures (in % of GDP)
Of which:
47.1
48.1
49.3
49.0
49.6
50.3
49.3
48.8
48.9
45.9
-Social benefits (total)
26.2
27.3
28.5
28.9
29.5
30.9
30.6
30.2
30.1
29.7
-Compensation of employees
9.0
9.2
9.3
9.0
9.0
8.9
8.7
8.5
8.4
8.1
-Gross fixed capital formation
2.7
2.9
2.8
2.7
2.3
2.1
1.9
1.8
1.9
1.9
Source: Commission sources (AMECO)
At the same time, the sustainability of public finances had to be guaranteed and the Maastricht
criteria to be fulfilled. The strategy pursued by the federal, regional and local governments
relied on a reduction in public investment and a policy aimed at reducing public employment
and at achieving moderate wage increases in the public sector.

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As a consequence the structure of expenditure changed significantly over the decade between
1991 and 2000, with outlays for the compensation of employees and investment considerably
scaled back in terms of GDP while social transfers rose rapidly. As shown by Table 2.6
Budgetary consolidation in Europe in the 1990s made for a decline in the GDP ratios of the
government wage bill and of investment outlays in most European countries. On the other hand,
the rise in social transfers was particularly dynamic in Germany. While the EMU/EU average
for this category of expenditure remained unchanged, respectively decline slightly, in Germany
it went up by 3.7 percentage points, an amount which is unlatched by any of the other larger EU
countries. In the light of the need to reduce the deficit, this resulted in a strong upward pressure
on the tax burden.