Overview

The most striking features of the postwar history of macroeconomic policy in developed democracies are the dramatic and considerably common upward trend of transfer payments, the attendant increase in total fiscal activity, the sharp post-oil-crisis rise in public debt, and the strong shift toward antiinflationary monetary policy that followed. Upon closer examination, however, the differences in policies and outcomes across countries and over time are at least as striking.

For example, the average share of gross domestic product (GDP) devoted to transfer payments in 21 developed democracies more than tripled from 6% (±) to 20% (±) from the 1950s to the 1990s, yet transfers septupled in the Netherlands while less than doubling in Germany. Driven heavily by this transfers growth, the 21-country average of total fiscal activity, government revenues plus expenditures as a share of GDP, almost doubled from 40% to 70% in the same period. This growth eventually spurred public debt accumulation, but, again, debt burdens exploded in some places while remaining far more moderate in others. The average debt-to-GDP ratio fell from 38% in the 1950s to 25% in the mid-1970s before rising to 63% by the mid-1990s, yet debt rocketed past 100% of GDP in Belgium, Ireland, and Italy while remaining much more moderate in the United Kingdom and mostly declining in Australia over this period. Finally, as rising transfer and debt liabilities reduced fiscal efficacy and maneuverability, governments commonly turned to monetary and other institutional “reforms” aiming to restrain inflation.