In the past seven months, I’ve used my 20th Theorem of Government to analyze three countries (France, Brazil, Colombia) and two states (Maryland, Washington).
All of those case studies were examples of “fiscal deterioration,” which occurs when politicians violate the Golden Rule of fiscal policy by spending too much and too quickly over a multi-year period.
But what about “fiscal improvement,” which is the second part of the 20th Theorem? Isn’t there any good news to share?
I could point to this 2014 column to prove that there occasionally are examples of countries that improved public finances with spending restraint. Later that year, I even wrote about how the Tea Party produced some progress in the United States.
If you want present-day examples of spending restraint, it’s very unfortunate that there are almost no countries doing the right thing.
Argentina is an obvious exception, though we only have one year of data (though that one year is extremely impressive). So I prefer waiting until 2026 or 2027 before drawing any big conclusions.
Today’s column will focus instead on a very unlikely exception. We’re going to cite Greece as an example of fiscal rectitude.
Sounds crazy, I realize, but Greece has been fiscally responsible this decade. Using the IMF’s big database, I prepared this chart showing average spending growth over the past five years and compared that number to GDP growth and growth of tax revenue.
This is progress, no matter how you measure it.
But it’s also just a small step on what hopefully will be a long journey. Here are four things to understand.
Both the tax burden and spending burden in Greece are nearly 50 percent of GDP according to the IMF database, way beyond the growth-maximizing size of government.
The good news, relatively speaking, is that spending consumed nearly 60 percent of GDP in 2020 (like in many nations, politicians used the pandemic as an excuse to spend more money). So there’s some progress.
Government revenue has stayed relatively constant as a share of GDP, so all the progress in Greece is on the spending side of the fiscal ledger.
What Greece needs is a Swiss-style spending cap so there are several decades of fiscal restraint rather than just five years.
Though it’s great that Greece at least is heading in the right direction.
Dominic Pino of National Review certainly is impressed. Here are some excerpts from his recent article about fiscal restraint in both Argentina and Greece, but let’s focus on what he wrote about the latter.
Argentina and Greece have actually been shining lights of fiscal responsibility in recent years. You read that right: The countries that had been bywords for ballooning debt have been getting their acts together while the supposedly responsible countries like the U.S. have gone the other way. Prime Minister Kyriakos Mitsotakis of Greece is a purposefully anti-populist center-right technocrat… Greece has announced a budget surplus of 1.3 percent of GDP in 2024. …Greece’s unemployment rate has dropped to 8.6 percent, still high by U.S. standards but the lowest rate in Greece in 17 years. S&P upgraded Greek sovereign debt back to investment grade in 2023 and just upgraded it again last week, citing “unwavering fiscal discipline.” The IMF projects Greece’s economy will grow at twice the average rate for advanced European economies this year… It might have been hard to explain to someone in 2010 that Greece…would be modeling fiscal responsibility for the world, but here we are.
I’ll close with the observation that Greece used to be a case study of the 20th Theorem, but in a bad way.
Dan Mitchell is co-founder of the Center for Freedom and Prosperity and Chairman of the Board. He is an expert in international tax competition and supply-side tax policy.
