Size of government: Bigger is not better
The size of government in Freedom Barometer Index is measured by the level of government consumption, taxation and government intervention in the market through subsidies or direct ownership. All Balkan countries are characterized by large public sector, Albania being the only exception. The lowest scores are reserved for Croatia and Bosnia, and the highest for Albania. Other countries are standing in between.
Albania B&H Croatia Montenegro Serbia Greece Bulgaria Macedonia
8.26 5.32 5.28 5.72 5.88 6.23 6.64 6.12
Public expenditure in most Balkan countries remains high
Most of the countries spend more than 40% of GDP, a similar level to developed European countries. The only exceptions are Albania, Macedonia and Bulgaria with lower public spending than the average. Governments in Serbia and Bosnia spend almost half of their annual GDP which can by all means be called an exaggerated public consumption.
Albania B&H Bulgaria Croatia Greece Macedonia Montenegro Serbia
32.1 47.5 38.3 44.5 46.4 34.7 45.3 48.3
This level of public spending must be compensated by high taxes. High level of taxation hampers economic growth and leads to high levels of shadow economy, which is more present in Balkan countries than in Central Europe among new EU members. Furthermore, most of these public funds are distribution transfers (most notably public pension funds) which increase current consumption over the savings and investment.
High public debt is increasing
High public consumption also leads to high public deficits. As long as the deficits are lower than or equal to expected economic growth, they are sustainable. Public profligacy, as well as the economic crisis, led to high budget deficits and a strong increase in public debt. The rise in public debt is most evident in Greece, which already defaulted on its creditors, but public debt has risen dramatically also in Serbia, Croatia and Montenegro. The only country without public debt concerns in the region is Bulgaria. Furthermore, budget deficits among Balkan countries are still higher than expected economic growth which means that public debt will further increase in the future.
Government spending is not necessarily bad for economic development. Provision of public goods such as law and contract enforcement, public infrastructure etc. complemented with education and healthcare systems can be useful for the citizens and economy as a whole. Unfortunately, that is not case with the Balkan countries, where corruption is widespread and endemic, with overgrown and inefficient public sector.
In order to solve the public debt problems, Balkan countries need high levels of economic growth as well decrease in public consumption. Unfortunately, stronger fiscal consolidation in the region still needs to take place, although Greece and Montenegro have taken steps in the right direction. The public consumption levels of most countries in the region are equal to those in developed European countries, but without any economic sound base which could support such high public expenditure.