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The Effects of Public Expenditures on Labour Productivity in Europe

Author

Listed:
  • Igor Fedotenkov

    (Joint Research Center, European Commission, Rue du Champ de Mars, 21, 1050 Brussels, Belgium)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa)

Abstract

In this paper, we analyse the effects of public expenditures and their structure on productivity growth in industry and services in the European Union (EU) countries. We also control for the share of expenditures made by central governments. We find that productivity growth in industry decreases with government expenditures on environmental protection and increases with the decentralisation of government expenditures on recreation, culture and religion. As for services, productivity growth declines with military expenditures and increases with the centralisation of expenditures on public order and safety, and with the decentralisation of expenditures on economic affairs. The former two effects are mainly noted in Eastern European countries, while the latter is stronger in Western Europe. Lower corruption increases productivity growth. Furthermore, our estimates suggest that there is a convergence in productivities across EU member states, with convergence faster in the service sector than in the industrial sector. These findings carry important policy implications.

Suggested Citation

  • Igor Fedotenkov & Rangan Gupta, 2020. "The Effects of Public Expenditures on Labour Productivity in Europe," Working Papers 202038, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:202038
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    Cited by:

    1. D. M. Zhuravlev & V. K. Chaadaev & E. B. Mikheev, 2025. "Factors of labour productivity growth of the industrial sector in the context of the economic restructuring," Russian Journal of Industrial Economics, MISIS, vol. 18(1).
    2. Andrew Phiri & Chuma Mbaleki & Christian Nsiah, 2022. "Fiscal expenditures, revenues and labour productivity in South Africa," Cogent Economics & Finance, Taylor & Francis Journals, vol. 10(1), pages 2062912-206, December.
    3. Kato, Yuta, 2025. "Escaping the Middle-income Trap: The Role of Strategic Public Investment and Industrial Structure Change," MPRA Paper 124758, University Library of Munich, Germany.
    4. Mengying Wang & Stuart Gilmour & Chunhai Tao & Kaixuan Zhuang, 2020. "Does Scale and Efficiency of Government Health Expenditure Promote Development of the Health Industry?," IJERPH, MDPI, vol. 17(15), pages 1-19, July.

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    Keywords

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H76 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Other Expenditure Categories
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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