Governments should work to ensure that public resources are spent as effectively as possible. There is no specific level of public expenditure which is most conducive to growth and prosperity: public spending on different sectors may rise or fall over time as national priorities and needs change. However, it is important for governments to try to maximise the cost effectiveness of the resources they do allocate, aiming to achieve the best possible results, in terms of quality and benefits for society, for the given level of resources. Across the different areas of government activity, education and healthcare are the sectors where public spending effectiveness can be most readily compared, as these have the best developed internationally standardised measures of results.
On average across the OECD, health expenditure accounts for 19% of overall public spending, or 9% of GDP (see Chapter 15 on “Public spending”). Health expenditure effectiveness is assessed by comparing a country’s life expectancy at birth to its total current health expenditure per capita. This comprises both public and private health spending; the latter may be higher in countries without comprehensive public health schemes. Although life expectancy is affected by factors beyond healthcare activities and spending (such as lifestyle, behaviour and environment), there is a positive relation between health spending and life expectancy at birth (Figure 3.7). Nevertheless, countries such as Costa Rica, Israel, Spain and Switzerland have higher life expectancies than other countries with similar levels of healthcare spending. Japan achieves the highest life expectancy of any OECD country (84 years) with per capita healthcare expenditure that is similar to the OECD average. Meanwhile, countries such as Latvia, Lithuania and Mexico have lower life expectancies than other countries with similar per capita healthcare spending.
On average across the OECD, education expenditure accounts for 11% of overall public spending, or 5% of GDP (see Chapter 15 on “Public spending”). Results in this sector are measured using data from the OECD Programme for International Student Assessment (PISA). This uses comparable tests to evaluate the performance of 15-year-old students in a wide range of countries on reading, mathematics and science. Average cumulative expenditure on education across the OECD is around USD 125 700 PPP per student across primary and lower secondary education. Overall, there is a positive relationship between expenditure and PISA results. However some countries, including Japan, Korea and Latvia, achieve higher mathematics scores than those with similar cumulative levels of education expenditure per student (OECD 2024). Similarly, countries including Ireland, Korea, Japan and New Zealand achieve higher reading scores than other countries with similar expenditure per student (Figure 3.9).
Countries which are not achieving the same results as others spending similar amounts may benefit from exploring ways to improve their spending effectiveness. This may involve reforms to policy, improvements to the public institutions implementing government policy, or improving delivery, such as through upgrading skills or digitalisation. Alternately, it might involve shifting some public resources to address wider social issues which are affecting results (e.g. funding anti-smoking campaigns). By focusing on improving spending effectiveness, governments can free up resources for other public purposes, and/or release resources back to businesses and the public. It will also be important for governments to work to build comparable evidence in other sectors allowing better cross-national benchmarking of spending effectiveness.
