10. Public Spending for Future Generations

L. Ferrari and V. Meliciani in Chapter 10 propose a new “quality” of public spending (public spending for future generations) measure which goes beyond the traditional distinction made between public gross fixed capital formation and public current expenditure. The proposed aggregate is more in line with the objectives and policies introduced at the European level such as NextGenerationEU, which requires EU countries to spend a certain percentage of their resources on projects aimed at promoting digital and green transition, scientific research, and social cohesion. Highly indebted countries have significantly decreased the share of GDP for public spending for future generations, especially since the financial and sovereign debt crises. However, countries have not reduced their share of total public expenditure of GDP. It is suggested that national governments and the EU fiscal rules should focus more on the composition of public spending, not only public gross fixed capital formation, but also current expenditures that have long-run effects on sustainable development such as education, R&D and environmental protection.