Ten years ago, I asked whether Denmark was going to be “a Shining Example of Mitchell’s Golden Rule.”
To achieve that distinction, a nation needs to have a multi-year period where there is fiscal restraint so that the private sector grows faster than the government.
I showed in 2019 that the answer to my question is yes.
But now the answer is an emphatic yes. Here’s a chart based on IMF data. As you can see, Denmark did a great job at spending restraint from 2013-2019 and a good job of limiting government from 2013-2023.
The spending restraint during the 2013-2023 period is particularly impressive since that included the pandemic years. Danish politicians allowed spending to expand when COVID hit, but only for one year (2020) and by a far lesser amount (8.2 percent) than most other nations.
And the spending restraint was so good before and after the pandemic that overall spending grew by an average of only 1.7 percent during the 2013-2023 period.
The most impressive achievement in the graph is that the overall burden of spending dropped by 11 percentage points of GDP.
Government consumed nearly 58 percent of the economy’s output in 2012, the year before spending restraint began. By 2023, the spending burden was less than 47 percent of GDP.
Unsurprisingly, spending restraint meant the nation also went from having large budget deficits to having large budget surpluses. The obvious takeaway is that when you address the disease of excessive spending growth, you automatically fix the symptom of red ink.
Back in 2014, I showed a list of nations that had multi-year periods of spending restraint, with government growing by an average of less than 2 percent annually.
I need to update that table and include Denmark.
The bottom line is that Denmark’s government made a lot of progress. However, the public sector is still far too big (and spending is growing far too fast this year, so some of the 2013-2023 progress is being eroded).
P.S. Denmark is a good role model for Social Security reform, which makes me wonder why some conservatives seem to prefer Hungary.
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Image credit: Jim Nix | CC BY-NC-SA 2.0.
