Risk reduction and public spending
As governments grow richer, the share of their GDP devoted to public spending rises. Public spending in the United States was 7.5 percent of GDP in 1913. It is 33 percent today. Although industrial countries spend twice as much as developing countries, government spending on goods and services is the same in both groups of countries. The difference is almost entirely due to transfer payments, which are about 22 percent of GDP in the industrial world. Most of these transfer payments - pensions, health insurance, unemployment insurance, guaranteed loans- are aimed at mitigating risk in the private sector The authors explore how the framework for evaluating government spending on goods and services can be extended to incorporate the government's various risk-reducing activities. The authors argue that there is a case for incorporating risk reduction into government spending, if doing so meets standard welfare-economics criteria for government intervention in the economy. Through examples - government-provided health insurance and crop insurance, price stabilization schemes, transfer programs for income support, public investments, publicly provided health care, and government credit guarantees - they show where government spending on risk reduction could improve welfare, by either alleviating a failure in risk markets or by reducing uncertainty in otherwise distorted markets. They illustrate calculations of the risk-reduction benefits of public spending and cite cases where their neglect could lead to serious underestimates.
|Date of creation:||31 Jan 1998|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (202) 477-1234
Web page: http://www.worldbank.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
- Pritchett, Lant, 1995.
"Divergence, big time,"
Policy Research Working Paper Series
1522, The World Bank.
- Arrow, Kenneth J & Lind, Robert C, 1970. "Uncertainty and the Evaluation of Public Investment Decisions," American Economic Review, American Economic Association, vol. 60(3), pages 364-78, June.
- Greenwald, Bruce C & Stiglitz, Joseph E, 1986. "Externalities in Economies with Imperfect Information and Incomplete Markets," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 229-64, May.
- Hammer, Jeffrey S., 1996.
"Economic analysis for health projects,"
Policy Research Working Paper Series
1611, The World Bank.
- Donald Cox & Emmanuel Jiminez, 1993. "Private Transfers And The Effectiveness Of Public Income Redistribution In The Philippines," Boston College Working Papers in Economics 236, Boston College Department of Economics.
- Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
- Alderman, Harold & Lavy, Victor, 1996. "Household Responses to Public Health Services: Cost and Quality Tradeoffs," World Bank Research Observer, World Bank Group, vol. 11(1), pages 3-22, February.
- Tanzi, Vito & Schuknecht, Ludger, 1997. "Reconsidering the Fiscal Role of Government: The International Perspective," American Economic Review, American Economic Association, vol. 87(2), pages 164-68, May.
When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:1869. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi)
If references are entirely missing, you can add them using this form.