Consumption Patterns

Francesca Bastagli, John Hills, Eleni Karagiannaki and Tiffany Tsang.

Funded by: The Nuffield Foundation

Contact: Tiffany Tsang

WHAT DO WE SPEND THE MONEY ON? CONSUMPTION PATTERNS AND NATIONAL TAXATION LEVELS

At the centre of politics in the UK and elsewhere is what is sometimes called ‘the big trade-off’: where to strike the balance between collective goods and social spending, financed through taxation and private consumption.  Abstracting from public borrowing, higher spending on, for instance, publicly funded health care or education requires higher taxes to pay for it, and hence lower private consumption of some kind.  Lower taxes, enabled by lower levels of public spending, allow higher private consumption for any given pre-tax income.

An extensive literature looks at the consequences of higher and lower levels of social spending between countries in terms of the kind of welfare services they provide, or the distributional consequences of different patterns of taxes and transfers. Another extensive literature looks at the economic consequences, especially for growth and labour supply, of different tax levels and structures.  But, remarkably, we are not aware of any studies which have looked at the other side of the trade-off: what is it that citizens in countries with lower taxation levels spend their extra take-home income on?  What is it that people in the UK are able to spend more on than, say, citizens of France or Denmark, as a result of our collective decision to have less extensive social provision?  To look at it the other way, what are the citizens in other countries apparently sacrificing to enable their higher public spending?

The research will first make broad comparisons of private and social spending patterns in a range of OECD/EU countries with similar incomes to the UK using aggregate data, but then focus on a smaller group, using household budget survey data to look in detail at what such differences between countries mean at the household level, particularly around the median.