The growth of public expenditure from 1870 to the present time had to be financed. For the first 100 years, until the 1960s, this was largely achieved through increased tax collection except during war periods. In recent decades, public revenue did not keep up with public expenditure despite the introduction of new taxes and significant increases in tax rates and in the share of tax revenue to GDP. Governments started recording fiscal deficits on a regular basis in the 1970s. These deficits accumulated to significant public debt burdens. Especially countries with high levels of public spending have been plagued by high tax burdens, fiscal deficits, and high public debt. In addition, governments have overcommitted themselves toward their retirees. Under current policies, the present value of the future deficits in the finances of the pension systems will dwarf the current explicit public debts in some industrialized countries. In recent years, these developments have led many governments and policy experts to worry about the high levels of public expenditure and about the implications of existing policies for future generations. Recently, fiscal consolidation has started to bear fruit in the form of lower deficits in most industrial countries and even surpluses in some. However, it remains to be seen whether this fiscal consolidation will continue in the future, especially if economic growth slows down.

REVENUE

Total Revenue

Until the early-1970s, in normal times, government revenue had largely kept pace with public expenditure. Sustained fiscal deficits were rare, except during wars or during the worst period of the Great Depression.