This appendix briefly describes the recent efforts of the Organization for Economic Cooperation and Development to develop a more accurate picture of social welfare spending in advanced industrial nations. The OECD's findings form the basis for Figure I1.1 in the Introduction to Part I, as well as for the cross-national estimates of the private share of social spending referred to throughout the book. Table A.1 summarizes how the OECD statistics were developed.

First, the OECD researchers calculated the extent to which governments claw back public cash transfers through direct and indirect taxation. If social welfare benefits provided on the expenditure side are taxed away on the revenue side, they are not counted as net additions to social spending. This adjustment produces striking results, as line 2 of the table indicates. High-spending nations like Sweden claw back almost a third of gross public expenditure through direct and indirect taxation. In contrast, the United States and other low-spending nations tax away very little of their more modest expenditures. The result is a sizable convergence of spending levels across countries when relative tax burdens are taken into account.

Second, the revised OECD figures include preliminary estimates of tax expenditures with social welfare aims. Such expenditures encompass tax breaks that are tantamount to direct cash benefits (for example, special tax allowances for families with children) and tax subsidies for private social benefits (for example, the tax exemption of employer-provided health insurance). As line 3 of the table indicates, accounting for tax breaks narrows considerably the gaps in spending across nations.