Enhancing the Effectiveness of Public Spending

Finland is committed to high quality and extensive public services, many of which are provided equally to rich and poor, stemming from a strong egalitarian ethic that it shares with other Nordic countries (Figure 15).29 This ethic also manifests itself in a high degree of income re-distribution but necessitates a heavy tax burden that is becoming increasingly difficult to sustain due to tax competition and the need to harmonise certain taxes with other EU countries. Pressure on taxation implies a need for adjustment of expenditure. Despite the strong fiscal discipline that was exercised following the surge in public spending during the recession of the early 1990s and the subsequent pruning of expenditure as a share of GDP back to the euro area average (Figure 16), several issues need to be tackled to ensure the long-term sustainability of the public accounts...