According to OECD data from 2024, Israel's general government spending was approximately 42% of GDP, higher than the OECD average of 40%. However, efficiency indicators, such as the World Bank's Government Effectiveness Index, show Israel ranking below many developed economies, suggesting structural inefficiencies.
A 2025 report by the Taub Center for Social Policy Studies in Israel found that public sector productivity has declined by 0.5% annually over the past decade, while private sector productivity grew by 1.2% per year. This gap is attributed to bureaucratic red tape and a growing number of government employees, which reached 85,000 in 2025, up from 78,000 in 2020.
The high cost of government is partly due to generous pension benefits and wage agreements. The Ministry of Finance estimated in 2025 that public sector pension liabilities reached 1.2 trillion shekels (approximately $330 billion), representing a significant fiscal burden.
These inefficiencies are seen as a drag on Israel's 'Start-Up Nation' reputation. A 2026 survey by the Israel Innovation Authority found that 45% of tech startups cited government bureaucracy as a major obstacle to growth, up from 38% in 2023. The government has proposed reforms, including digitalization of services and reducing the number of ministries, but progress has been slow.
