Our analysis starts in section 3 by asking `why bother’? To show that there is macroeconomic merit in measuring public expenditure force as an early warning of fiscal episodes, we start by investigating with GFS<sup>3</sup> data whether – in aggregate – our measure can provide an early signal of the onset of past fiscal episodes that were driven by excessive build-up in public spending. Because we are dealing only with the expenditure side of the fiscal balance, we develop a measure of expenditure episodes of which we identify 254 episodes for 114 advanced and emerging economies over 42 years. We show using the `noise to signal approach’ that our expenditure force measure over prior years’ spending is a credible early warning signal for policy makers of expenditure-driven fiscal crises.

We then set about tracking this measure of medium term “ _public expenditure force_ ” for four countries over time. In section 4, using the new BOOST public expenditure tool, we show how the disaggregated force measure can help guide policy makers as to likely candidates for expenditure reforms. To do this we introduce the concept of _rigidity_ in public spending, following the framework in Centrangolo et al (2010).<sup>4</sup> We use the BOOST data tool for four countries<sup>5</sup> to tag the economic classification of expenditures as either discretionary or rigid, according to institutional constraints which limit discretion over changes in the level or structure of spending in a particular time period. The results in section 5 demonstrate the value of using force and momentum measures together with rigidity tagging by presenting the results of four more detailed country case studies over time.

Adding meaning and signaling to public spending analysis is an important contribution to macroeconomic and fiscal management in pursuit of the World Bank’s twin goals for two reasons. First, because the public spending level and its composition helps determine a country’s stability, economic efficiency, and social equity. Second, because cutting public spending is nearly always part of the solution of restoring macroeconomic stability. Present public spending practice is typically not sufficiently medium-term and seldom sufficiently linked to output measures of service coverage, quality and efficiency, but of the shortterm “elevator” type, with budget observers monitoring what goes up and what comes down from one year to the next, with the unwritten understanding, familiar to Sir Isaac Newton, of “what goes up, must come down”, or must have a very good justification for going up in the first place.

Macroeconomic crises are short term phenomena, and their causes – as demonstrated most recently with the global financial crisis – can be unpredictable and hard to spot. But an economy’s exposure to crises, the depth of a crisis impact on the welfare of a country’s people, and a country’s resilience in withstanding and recovering from crisis each depend on the country’s foundations of fiscal management. These start with public expenditure management. The level and composition of public spending in a country is fundamental to growth, inflation, and the balance of payments<sup>6</sup> and so to macroeconomic stability.

> 3 IMF Government Finance Statistics (2013)

> 4 Cetrangolo, O., J. Jimenez and R. del Castillo, 2010. “Rigidities and Fiscal Space in Latin America: A Comparative Case Study”, Working Paper 97, UN ECLAC

> 5 The four countries are Moldova, Bulgaria, Armenia and Paraguay

> 6 Chu and Hemming (1991) “Public Expenditure Handbook: A Guide to Public Policy Issues in Developing Countries”, IMF, page 1.