INTRODUCTION:
V. CASE STUDIES ON IMPROVING THE QUALITY OF PUBLIC FINANCES:
REDIRECTING SPENDING AND IMPROVING FISCAL INSTITUTIONS
The question of redirecting public spending and improving fiscal institutions has been at the heart of the
quality of public finances agenda. As there is no single blueprint for improving public sector efficiency,
the methodological approach of the Working Group was to answer three empirical questions: (i) which
priorities for redirecting public expenditure have been identified at the national level; (ii) how and
through which institutional mechanisms will expenditure be (or has been) redirected towards the
identified priorities and (iii) what have been or may be the impacts of this policy on outcome indicators
related to trends in productivity growth.
EU Member States have developed different individual reform approaches including structural and
institutional reform measures. The following case studies by the Czech Republic, Finland, Germany,
Italy, Malta, Poland, Portugal, Spain and the United Kingdom represent a comprehensive sample of
experiences against the background of the specific national challenges, structural differences and
respective institutional settings. The studies clearly confirm that cross-country comparisons and the
exchange of best practices are vital in order to develop national strategies towards improving efficiency
in the Member States. The case studies show that the degree to which a particular type of expenditure
(e.g. education, R&D, infrastructure) has a positive impact on productivity differs from country to
country, calling for a detailed and country-specific decision-making to guide the composition of national
public expenditure. Moreover, it can be seen that some objectives are agreed by all case-study countries
but the strategies and supporting institutions to achieve them differ.
Regarding the formulation of the strategic goals, all countries start from the overriding objective of
achieving or maintaining fiscal discipline. Within this context, priority is then given to restructuring the
budget and enhancing growth and employment. In several cases strong priority must necessarily be given
to fiscal consolidation, providing the room for restructuring opportunities. Where issues of fiscal
consolidation are less pressing, the focus is more on the restructuring of budgets. Overall, once budgets
are able to fulfil the requirement of aggregate discipline in a sustainable way, the issues of allocative and
technical efficiency receive more attention.
The studies show that changes in the composition of public expenditure and their impact on policy
outcomes take around 10 to 15 years to materialise of, depending on different starting positions and other
factors. Some countries were early in introducing institutional reforms and prioritising certain
expenditure items which already paid off in terms of policy outcomes (e.g. Finland), while for other
countries (including several new Member States such as the Czech Republic, Malta and Poland) a more
forward-looking approach may be appropriate.
As regards shifting spending priorities, the importance of expenditure related to R&D, innovation,
education and infrastructure has been confirmed through the case studies, although they vary by country
needs. For example, Poland and Italy prioritise public investment in technical infrastructure, while the
UK emphasises the importance of health spending. Room for manoeuvre is to be created through
different avenues including pension, health and labour market reforms, cutting down subsidies and tax
expenditures and improving the efficiency of the public administration.
The studies also reveal that most countries have established expenditure priorities but only few have
introduced systematic and extensive medium-term strategies of priority formulation, implementation and
evaluation. As a result and given the ‘soft’ nature of expenditure priorities formulated in government
programmes and political declarations, they are easily crowded out by other expenditure pressures during
the budgetary decision-making process and in the course of budget implementation.
Another recurrent theme in the case studies are the challenges that arise from a large share of fixed
expenditure, due to legal obligations. They make it difficult to reduce public spending in the short run
(examples are the Czech Republic, Germany and Poland). Moreover, past commitments complicate