Despite having low government spending, Switzerland scores highly in various public policy outcomes, including health, education and transportation. But, as the population grows and ages, efficiency of public spending will have to rise to maintain low tax rates. Given its high returns, the provision of early childhood education and care should be boosted, especially for children from disadvantaged socio-economic backgrounds, including those from immigrant families. Cantons should avoid oversupplying baccalaureates, thereby lowering university dropout rates. Policies will also need to adapt to structural changes in the labour market, by boosting the supply and attractiveness of fields of study that are facing high demand on the labour market, and by further clarifying study streams across tertiary education. Health-care efficiency could be raised by further developing managed-care networks. Enforcing systematic data collection for the quality of care would also help patients and providers make better informed choices. Generic drugs’ prices are too high due to a poorly designed price-fixing mechanism. Transportation suffers from congestion that could be reduced by implementing peak-load pricing on roads and trains. But efficiency in public spending is also about allocating public funds optimally. Switzerland’s rapidly rising social security entitlements and its fiscal equalisation system constrain public spending and risk crowding out important expenditures. Fast-rising social security entitlements could be addressed via indexing the retirement age to life expectancy. Fiscal equalisation weakens tax-raising incentives for some cantons; this could be addressed by allowing them to keep a larger part of their increased revenues. Efficiency in allocating public expenditure could also be raised by increasing the share of public spending allocated by tender and harmonising procurement regulations across all levels of government.
This Working Paper relates to the 2015 OECD Economic Review of Switzerland (http://www.oecd.org/eco/surveys/economic-survey-switzerland.htm)
