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

Table 2.6: Individual government expenditure items (in % of GDP)
% of GDP
D
F
I
UK
EUR
(1)
EU
(2)
US
JP
Final consumption expenditure
1991
19.20
22.54
20.28
20.71
21.63
21.54
17.24
13.31
2000
18.98
23.29
18.22
18.82
21.07
20.54
14.39
16.67
of which: compensation of employees
1991
9.00
12.69
12.56
11.67
12.53
12.49
10.78
..
2000
8.12
13.57
10.54
7.31
11.85
10.68
9.11
..
Social transfers
1991
26.19
30.24
28.03
25.61
29.46
28.75
..
14.5
2000
29.87
32.24
28.04
24.64
29.42
28.18
..
19.3
Investment
1991
2.74
3.63
3.23
2.40
3.29
3.03
2.65
4.88
2000
1.86
3.01
2.41
1.15
2.65
2.18
2.70
5.02
(1)
Euro-area excluding Germany, Greece, Ireland, Portugal and Spain
(2)
EU excluding Germany, Greece, Ireland, Portugal, Spain and Sweden
Source : Commission services
2.2.4 The year 1996 as a turning point?
The year 1996 constituted a turning point in the sense that many of the ratios analysed above
reached their peak in that year and have declined during most of the following years. This is true
for the revenue and expenditure to GDP ratio, the overall tax burden, social security
contributions (1997) and total social security benefits, interest ratio and final public
consumption.
The budgetary problems Germany faced again in 1995 (the deficit rose from 2.4% of GDP in
1994 to 3.5% in 1995), clearly showed that a more courageous approach was necessary in order
to comply with the criteria on EMU and that this would also require a tighter control of social
transfers than observed in the preceding years (cf. Table 2.4 for social benefits).
The fact that 1996 constituted a turning point is even more visible in the cyclically adjusted
revenue and expenditure ratios (Table 2.7). On the revenue side, there was a stabilisation
(in % of GDP) between 1996 and 1998, while the expenditure ratio could be cut back by 1.6
percentage points. Developments in 1999 were less favourable: While revenues expanded
strongly, expenditure stagnated in terms of GDP.