Sound expenditure and long term growth: assessing public finances in the EU Mediterranean partner countries

The European Commission, DG ECFIN, has published a CASE report, completed by CASE Fellows, Luc De Wulf and Cyrus Sassanpur, along with Leonor Coutinho. The central topic of the study is the impact of public finance on long-term growth in the EU’s Mediterranean Partner Countries. 

Drawn from a diverse array of countries, ranging from candidate-member Croatia to autocratic Syria, data point to some clear connections between sound expenditure and long-term growth.  First of all, the authors argue that the size of public spending doesn’t matter; it’s how the budget is used which makes an impact.  Good governance and ‘productive spending’ function as a catalyst for growth induced by public spending. Secondly, the composition of public finances can significantly in/decrease macro-economical volatility. More specifically, in comparison with income-based taxation, consumption-based taxes have more positive repercussions on long-term growth.

The full report of the “Study on quality of public finances in support of growth in the Mediterranean partner countries of the EU” is now available online on the EC website.