Government expenditures as a share of GDP and expenditures per capita indicate the size of the government and reflect historical and current political decisions about its role in providing services and in redistributing income. However, a large part of the variation in these ratios across countries display the different approaches to delivering goods and services and giving social support, rather than true differences in resources spent. For instance, if support is given via tax breaks rather than direct expenditure, expenditure/ GDP ratios will naturally be lower. In addition, for OECD member countries that are members of the European Union, the Maastricht criteria include targets for the amount that expenditures can exceed revenues in any given year. Finally, it is important to note that the size of expenditures does not reflect government efficiency or productivity.

Governments can choose to spend their money on a variety of goods and services, from providing child care to building bridges to subsidising alternative energy sources. For OECD member countries that are members of the European Union, common policy goals regarding economic growth, agriculture, energy, infrastructure, and research and development (among others) may also affect the structure of expenditures. The variance among countries in expenditures as a share of GDP is mainly explained by political differences about the role of government in providing social protections (unemployment insurance, old age pensions and disability benefits). When government spending on social protection is excluded, expenditures range between 20% and 30% of GDP in all countries. Social protection is the largest category of expenses in all but three countries: Korea spends the most on economic affairs whereas the United States and Iceland spend more on health than any other government function.

The responsibility for financing goods and services fall to different levels of government across OECD member countries. For example, in some countries, policing is the responsibility of local government while in others it falls to central authorities. However, these are also affected by a country’s institutional structure: when central governments in federal states share sovereignty with sub-central governments, those sub-central governments may have more power to shape policies and programmes.

Comparisons across countries of the proportion of benefits provided in cash by governments to eligible parties can illustrate differences in economic and social policies. Particularly within redistribution programmes (such as unemployment and health assistance), governments can provide benefits in cash (e.g. pensions) or in kind (e.g. food stamps or housing vouchers). OECD member countries spend more money on in-kind goods and services than cash transfers. Cash transfers generally have lower transaction costs, larger multiplier effects in the economy and provide individuals with more choice. However, governments may prefer in-kind transfers because it may be hard to identify eligible individuals, they want to control the delivery process, and/or they want to ensure that individuals receive adequate food, medical services or housing.