How Future-Oriented Are Europe's National Budgets? (in German language)

#ZEWPodcast How Future-Oriented Are Europe's National Budgets? (in German language)

Germany and other EU countries are currently running up record levels of debt – but how much of this will actually benefit future generations? This question is addressed by the new ‘Future Ratio’ developed by ZEW Mannheim – an indicator that measures the share of public expenditure that is actually spent on providing for the future. In the current background edition of ‘ZEW Wirklich Wirtschaft’, Professor Dr. Friedrich Heinemann, Head of the Research Unit “Corporate Taxation and Public Finance”, explains the concept and results of the Future Ratio.

Heinemann explains why conventional indicators such as the investment ratio are insufficient: concrete alone does not constitute a policy for the future. Instead, the Future Ratio takes into account a broad understanding of ‘capital’ – including not only physical capital but also human capital (education), technological knowledge (research and development) and natural capital (protection of natural resources). On the other hand, social transfers and interest payments on government debt are not considered future expenditure, as their benefits lie predominantly in the present and tend to restrict future scope for action.