Signal Redirecting 1% of GDP to infrastructure or education raises output 1.5-6%

Summary

EY frames a shift in government budgeting from short-term spending toward long-term investment as one of several pivots that could rebalance capital allocation. It supports the idea with IMF research on reallocating public funds. That research finds that moving at least 1% of GDP from less productive uses into infrastructure or education can lift output by between 1.5% and 3.5% in developed markets. In emerging markets the gain can reach as much as 6%. EY cautions, however, that many governments face rising debt and interest costs that limit fiscal room, and that tax measures to fund such investment can be politically hard to pass.