Analysing government expenditures by economic transaction breaks down public spending according to the nature of the economic activity it supports (e.g. employee compensation, intermediate consumption, subsidies, or social transfers). Unlike functional classifications, which organise expenditures by policy area, this approach focuses on the type of transaction, offering insight into how governments deploy resources to produce goods and services or redistribute income. This distinction helps policy makers analyse the operational mechanics of public spending—such as the balance between in-house service delivery and outsourcing, or the extent of direct income support. As such, this classification is instrumental in evaluating fiscal sustainability, public sector efficiency, and the broader macroeconomic implications of government activity.
In 2023, social benefits remained the largest share of government expenditure across the OECD (39.0% of total expenditures on average), with OECD countries also part of the EU accounting for an even larger share (43.4%) (Table 15.3). Japan, the Netherlands and Belgium largely exceed the OECD average, with their share of expenditure on social benefits amounting respectively to 51.6%, 47.3% and 47.0% of total expenditure, while in Iceland (19.4%) and Mexico (14.5%) this share was the lowest among OECD countries. Between 2019 and 2023, the share of expenditures on social benefits increased in 7 out of 37 countries for which data is available, with the highest increase observed in Mexico (+2 p.p.) and the largest decreases in Italy (-5 p.p.), Poland (-3.9 p.p.) and Greece (-3.7 p.p.).
The second largest category of government expenditures in 2023 remained employee compensation, representing on average 20.6% of total expenditures in OECD countries and 20.3% in countries also part of the EU. Chile (34.3% of total expenditures), Iceland (30.7%) and Mexico (28.9%) spent most on this category, while Japan (12.5%) and Colombia (13.9%), displayed the lowest shares. This disparity can be accounted for differences in the size of public service across countries, with Japan for instance having the smallest public employment share across OECD countries, significantly below OECD average (see Section on “Employment in general government” in Chapter 13). While the share of employee compensation in total government expenditure has decreased in all countries between 2019 and 2023, except Australia (+0.3 p.p.), the largest decrease has been observed in Costa Rica (-14.4 p.p.), bringing compensation of government employees in the country closer to OECD average, and reflecting the introduction of limits to public wages as part of the 2018 fiscal reform, with first effects observed in 2021, as well as the introduction of a single and unified salary framework as part of the 2022 public employment framework law (OECD, 2023).
Overall, the share of public spending on both social benefits and employee compensation has decreased on average since 2019 in both OECD (respectively by -1.2 p.p. and -1.8 p.p.) and OECD-EU member countries (respectively by -2.3 p.p. and -1.5 p.p.), while spending on other transactions, especially capital expenditures (+1.4 p.p. in OECD and +2.5 p.p. in OECD-EU countries), has increased.
