THE IMPORTANCE OF REFORMING EXPENDITURE POLICIES

In the first two parts of this study we argued that in recent decades, governments have been doing too many things and often they have not done them in the most efficient manner to achieve the stated social and economic objectives. Thus, they end up spending much more than necessary. Governments, therefore, need to reform themselves while disengaging from many current activities that are not directly connected with well-defined social goals. This will allow them to focus more effectively on their main economic and social objectives, thus making it possible for public spending to come down without sacrificing much in terms of economic and social well-being. In fact, the key message of this book is not that the government should become indifferent to the welfare of the population, but rather that it should consider alternative ways of pursuing its objectives. The book argues that these alternative ways are often available and feasible.

We have argued in the previous chapter that fiscal rules and institutions are important prerequisites for achieving these objectives. Good institutions improve government efficiency and can reduce, over time, the growth of government spending. However, good institutions will not necessarily generate the reforms of expenditure programs that will reduce the role and, with it, the size of the state. The needed reforms require difficult policy choices. This chapter aims at providing some broad guidelines on what the options are and on the direction the reforms could take.