Working Papers

L. Ferrari, V. Meliciani – Public Spending for Future Generations: Recent Trends in EU Countries

Public investment, traditionally measured using the so-called gross fixed capital formation (hereinafter, GFCF) of the public sector, decreased dramatically in the European Union (hereinafter, EU) between 2010 and 2016, both as a percentage of GDP and in relation to the population, passing respectively from 3.7% to 2.7% of GDP and from approximately 1 to 0.8 thousand euro per capita. The contraction of this category of expenditure, traditionally considered discretionary and more compressible by governments, is mainly due to the measures implemented to contain public expenditure (austerity) imposed in Europe following the global financial crisis and has therefore mainly affected the Mediterranean countries, traditionally characterized by high levels of public debt and low growth rates. As explained in Cerniglia and Saraceno (2021), there is only a partial recovery of public investment, which in 2019 reached 3% of GDP and approximately 890 euros per capita respectively, starting from 2017.

The use of the public sector GFCF (the so-called gross fixed investment) for the evaluation of government expenditure policies and the measurement of the impact of the latter not only on economic growth but also on the level of a country’s development and social and environmental prosperity, however, have been the subject of extensive institutional and academic discussions over the past few years. An example is the UN System of National Accounts, whose 2008 revision (UN, 2009) expresses the need to consider the entire expenditure on Research and Development (hereinafter, R&D) and Education in the GFCF. In the academic field, for example, Streeck and Mertens (2011) include in the scope of their evaluation of public investment policies also the so-called "soft investment", i.e., public expenditure not accounted for as GFCF in R&D, Education, Active Labor Policies, and transfers to households. In fact, public sector GFCF expenditure is limited to the construction and maintenance of a country’s physical infrastructure (roads, railways, canals and bridges, machines used by the public sector). It can be easily noted that, first of all, the comparison of national policies made exclusively on the basis of this variable is made extremely complex by the latter's dependence on both the geographical characteristics and the level of infrastructural development of each country. Secondly (and above all), we believe that the public sector GFCF does not include some items of expenditure which, although formally accounted for as "current" expenditure, decisively determine the contribution of the public sector to economic and social development and to the protection of a country’s environmental heritage, and must therefore be included in the evaluation of public expenditure policies and in the measurement of their effects on economic, social, and environmental indicators. The analysis of these categories of public expenditure is also motivated by some objectives and policies introduced at European level such as, for example, the Next Generation EU, which require EU countries to spend a certain percentage of resources in projects aimed at promoting digital transition, scientific research, the green transition and social cohesion.

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