Investing for a productive state

We live in an era of fiscal constraint, where governments in advanced economies are facing increased demands from ageing populations, climate and security, while trying to manage higher debt levels. In this context, creating lasting public value becomes a fundamental challenge. Traditional measures of fiscal sustainability, focused on budgets, deficits and debt ratios, fail to capture whether government spending actually delivers impact for citizens and the broader economy.

A new report by OMFIF and EY, ‘Investing for a productive state’, puts forward a framework for fiscal effectiveness, focusing on public administration and direct service provision as the state's production function. This is the fourth instalment of the OMFIF-EY ‘The future of public money’ project.

In this new framework, we advocate for governments to measure value by linking expenditures to real-world outcomes. We encourage them to model scenarios of alternative allocations to assess investments that yield the highest returns, and mobilise capital through credible, accountable institutions to enable both public and private resources to be directed towards productive investments.

The report illustrates that the strategic allocation of public resources towards productive investments can simultaneously enhance growth, reduce debt and improve competitiveness.

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