This pamphlet discusses how economic policymakers may approach the question of the productivity of public expenditure. The discussion is aimed at those in charge of fiscal and budgetary policies. These policymakers rely on sectoral experts for detailed analysis, but they should be in a position to raise relevant questions and receive appropriate answers about the key features in the design and execution of sectoral programs. The pamphlet argues that improving public expenditure productivity is not only a microeconomic but also a macroeconomic issue. Therefore, macroeconomic policymakers have a major role to play in improving the productivity of public expenditure.

The first section of the pamphlet discusses why increasing public expenditure productivity is important in fiscal adjustment. The following section provides a framework in which public expenditure productivity and unproductive expenditures can be defined and analyzed. In the next section, a practical approach for analyzing public expenditure productivity, as well as illustrative analyses for several major, broadly defined expenditure components, is offered. The following section surveys the literature linking public expenditures and economic growth. Finally, conclusions and some pragmatic suggestions regarding the analysis of public expenditure productivity are presented. The appendix provides a summary of the composition of public expenditure for high-income, middle-income, and low-income countries, keeping in view the limitations of such cross-country comparisons for the assessment of expenditure priorities.