• Government revenues are government income. The main sources of revenue in OECD countries are typically taxes and social contributions, with some income from charges for services provided by the state. In some countries, revenues may include a significant portion from non-tax sources, such as income from state-owned enterprises or royalties on natural resources. Revenue policy is typically designed to serve multiple purposes. The most fundamental is to collect funds to pay for the provision of goods and services for the public, such as health care and defence. Revenue policies will often also be designed not to worsen inequality, such as by levying higher income taxes on those with larger incomes. Revenue policies can also be used to encourage socially beneficial activities (e.g. tax breaks on research and development) and discourage harmful ones (e.g. taxes on carbon emissions or tobacco). In some cases, these different purposes may conflict with each other.

  • The structure of government revenues shows the sources from which governments collect their revenues, and how these change over time. Taxes are the most significant source of government revenues in all OECD countries (Figure ). In 2021, the most recent year for which data are available for all countries, 60.6% of revenues in OECD countries were raised through taxes. In most OECD countries, taxes accounted for more than 50% of total government revenues. However, there was still a wide variation in their relative importance. The countries raising the highest share of revenues from taxes in 2021 were Denmark (88.5%) and New Zealand (82.8%), while Costa Rica had the lowest share (40.5%). The second most important source of revenues for OECD governments is social contributions, that is, payments into social insurance schemes. On average, these formed 24.7% of government revenues in OECD countries in 2021. Most countries which collected a relatively low share of their revenues from tax instead collected a relatively high share from social contributions, for example the Czech Republic (40.0% of revenues from social contributions) and the Slovak Republic (38.8%). OECD countries also collect a small proportion of their revenues from sales of goods and services (7.9% on average) and from grants and other sources (6.8%).

  • Government revenues are collected by each of the different levels of government which exist in a country: central, state and local. On average across the OECD in 2021, central government collected 52.6% of general government revenues, state governments collected 19.5%, local governments 10.2% and social security funds 17.6% (Figure ). However, there is very wide variation around these averages, and different OECD countries have very different funding structures across the different levels of government. The most important difference is whether government is unitary or federal. In countries with unitary governments, central government often collects a high proportion of government revenue. This is the case in the United Kingdom, which had the highest proportion of tax revenue collected by central government in 2021 (91.2%), and also in countries such as New Zealand (89.2%) and Ireland (84.6%). In contrast, in countries with federal systems, state governments often collect a significant proportion of revenues. Canada (43.6%) and the United States (42.4%) had the highest proportion of revenues collected by state governments among OECD countries in 2021. Local governments typically collect a smaller proportion of revenues than central and state governments. However, local governments in some countries collect a substantial proportion of revenues, for example Korea (35.9%) and Sweden (35.0%). This may occur where local government is responsible for managing and delivering important public services. This is the case in Sweden, and also in Finland (29.1%), where until recently local government had substantial responsibility for delivering health care and emergency services.

  • Governments accumulate debt to finance expenditures greater than their revenues. Government debt can be raised to finance current expenditures or invest in physical capital, but it comes at a cost in the form of interest payments and should be based on the objective appraisal of economic capacity gaps, infrastructural development needs and sectoral/social priorities as well as a prudent assessment of costs and benefits. As a result of the COVID-19 pandemic, many OECD countries increased spending through stimulus packages and interventions to support households and businesses, thereby incurring public debt.

  • The production costs of government are public expenditures on the goods and services which government uses. These costs include compensation for government employees (i.e. wages) and purchases of goods and services (e.g. supplies for schools and hospitals). They do not include government spending that does not involve a purchase of a good or service (e.g. spending on social welfare, unemployment benefits and other transfers). Outsourcing is the portion of government production costs which is used to buy goods and service from entities outside of government, i.e. government purchases from private companies and other agencies.