The Future Ratio: A New Metric for Forward-Looking Fiscal Policy in Europe

Abstract This article introduces the “Future Ratio”, a novel indicator designed to assess the future orientation of public expenditure in European countries. While traditional investment ratios focus primarily on tangible capital formation, the Future Ratio encompasses a broader concept of capital, including human capital, technical knowledge, natural capital, and growth-relevant infrastructure. Using Eurostat’s COFOG data, we calculate the Future Ratio for EU and EFTA countries from 2001 to 2023. Our findings reveal both positive and negative trends. After 2015, average future-oriented spending in the EU increased, with temporary setbacks during the COVID-19 pandemic, suggesting a potential learning effect from the euro area debt crisis. Cross-country comparisons highlight significant heterogeneity. Correlation analyses indicate that high debt levels strongly constrain future-oriented spending, while factors such as compliance with Stability and Growth Pact rules and performance-based budgeting are moderately associated with higher Future Ratios. Conversely, demographic structure, education levels, voter turnout, and procedural fiscal rules show little systematic relationship. We show that the negative correlation with the debt level is not just a mechanical consequence of higher interest rate payments. These results underscore the critical role of fiscal space in enabling governments to invest in the future. High-debt countries appear trapped in a “bad equilibrium,” where debt servicing crowds out investment in long-term priorities.