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The evolution of public expenditure: Portugal in the euro area context

Publication Year 
2012
Abstract 
The objective of this article is to present the main aspects of the evolution of public expenditure in Portugal from 1995 to 2011. Developments in the current composition of the euro area are used as a benchmark. Primary expenditure in Portugal increased substantially up to 2010, particularly in the period 1995 - 2005. In terms of the economic classification of expenditure, social benefits in cash, mostly pension expenditure, and, to a lesser extent, social benefits in kind and intermediate consumption were the main contributors to the strong growth in spending. The total expenditure to GDP ratio, however, was, throughout the period, below the euro area average and has shown a similar pattern of evolution in the recent years, when correcting for the impact of temporary measures and special factors in Portugal. However, Portugal as a euro area member state, despite its negligible increase in GDP per capita, recorded one of the highest increases in public spending as a percentage of GDP in the period under analysis.  In 2011, its level of total public expenditure to GDP ratio was higher than in many other euro area countries, including several ones with substantially higher GDP per capita. This relationship is also reflected in the four main types of expenditure by functional classification (defence and security and public order, health, education and social protection). Portugal converged to the euro area average functional structure.  A simple evaluation of efficiency in the health sector shows a substantial improvement in health status indicators in Portugal between 1995 and 2010. In the last year of that period, expenditure was slightly below that of the countries with the best results. Regarding the education sector, in spite of the improvement in terms of participation rates and in international exams, Portugal emerged in 2009 as a country with unfavourable results in terms of its educational process and high expenditure in relative terms.
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