The Economic Benefits of Improving Efficiency in Public Spending on Education in the European Union

Education provides substantial long-term gains for individuals, the economy and society as a whole. Accordingly, investing in education and training is part of the solution to many of the challenges Europe is facing, including globalisation, shrinking of the workforce and the changing nature of regular work. Policy makers allocate an important share of taxpayers’ money to achieve high quality education. However, spending may be subject to inefficiencies, i.e. potentially even more of an envisage…

Education provides substantial long-term gains for individuals, the economy and society as a whole. Accordingly, investing in education and training is part of the solution to many of the challenges Europe is facing, including globalisation, shrinking of the workforce and the changing nature of regular work. Policy makers allocate an important share of taxpayers’ money to achieve high quality education. However, spending may be subject to inefficiencies, i.e. potentially even more of an envisaged educational outcome (such as quantity, quality or inclusiveness of education) could be achieved if the money were spent according to best practice as defined by the performance across EU member states (“best practice across the EU”). To provide a measure of these gains we conduct a simple ‘back-of-the-envelope’ exercise, which relates PISA science score improvements from increasing efficiency in public spending on education to improvements in annual GDP per capita. Efficiency scores relating spending to PISA scores and semielasticities relating PISA scores to GDP per capita are taken from the existing literature. Results indicate that if we managed to eliminate any inefficiencies in spending with a view at achieving high PISA scores, annual growth of GDP per capita in the EU would be 0.8 percentage points higher in the long run; with variations across member states between 0.4 (as in Estonia) and 1.6 percentage points (as in Cyprus).