80 percent of all public investment in EU countries is spending on health and education – the report of the Polish Economic Institute stated. In Central, Eastern and Southern Europe, they account for 6.4 percent on average. GDP, and in other EU countries – 8.7 percent.
As the authors of the PIE report “Can the State Be a Good Investor?” , the annual rate of return on the state’s investment in education and citizens’ health may exceed 10%.
“Only 20 percent of all public investment in EU countries is spent on infrastructure. The remaining 80 percent can be classified as investment in human capital, ie spending on health and education of citizens” – we read. Among private investments, 12 percent, she added. It is directed to the development of human capital.
According to estimates by the European Commission in the report, the interest on public debt incurred by individual countries will reach 1.2% in 2022. With regard to GDP, it will be 0.3 percentage points lower than it was before the pandemic crisis, despite the significant increase in debt year in individual countries.
The report’s authors believe and suggest broadening the definition of public investment: “This is a good time to plan for public investment, particularly in human capital, as it stimulates growth, and translates into higher GDP, wages and tax revenues in the future.” . “In the new approach, it will include not only traditionally understood investments in physical capital – such as buildings and roads, but also those in human capital, that is, the education and health of citizens” – explains Jacob Saulsky, head of the PIE macroeconomic team.
According to analysts, expansionary fiscal policy will be possible as long as interest rates remain at the current low level. It has been observed that “attempts to estimate the natural rate of interest, that is, which stabilizes the economy, have shown that its value is declining systematically on a global scale.” It was assessed that this is not a temporary epidemic trend or the result of the financial crisis a decade ago, but a permanent phenomenon. “The natural rate of interest in advanced economies fell from 2.5% to 0.5% between 1998 and 2016”. – We read.
The report’s authors see the permanent decline in interest rates as an opportunity to launch new investments and improve the quality of existing public investments. “Scientific research shows that the most productive state investments in the long run include expenditures related to the development of children and youth, and, accordingly, investments in nurseries, kindergartens and public education” – he emphasized.
She added that public investment is also “above average” in the field of health care, and spending on it contributes to “increasing employee productivity, reducing the number of sick leaves and prolonging the working period of citizens.” In contrast, properly funded preventative care reduces the costs of future treatment – such as compulsory vaccinations or anti-obesity programs among students.
While the majority of investments in physical capital (machines, buildings and infrastructure) come from the private sector, in the case of investments in human capital, the vast majority are public sector spending – he emphasized. “In the European Union, investments in physical capital account for 20.5 percent of GDP, 86 percent of which comes from the private sector,” he wrote. When it comes to investments in human capital, it is 11.2%. GDP, 80% of it. It comes from the public sector.
That was calculated at 75 percent. Public investment in the European Union focuses on human capital development. The percentage of these expenditures varies from country to country, and ranges from 50 to 90 percent. “This great discrepancy is mainly due to the differences between the countries of Central, Eastern and Southern Europe and other member states” – he explained. Central and Eastern European and Southern European countries invest in human capital at an average rate of 6.4 percent. GDP, while other member states – 8.7 percent. gross domestic product.
“This may weaken the long-term development potential of these countries” – the report’s assessment. According to its authors, the restriction of public investment in southern European countries was the result of “the restrictive economic policy that was applied after the financial crisis at the end of the 2000s.” (PAP)
Author: Magdalena Jarco
Maya / pillow /