Entries RSS Feed Share Send to Facebook Tweet This Accessible version

Public subsidies have little impact on economic growth

September 22nd, 2014

An economist remarks that despite lavish government subsidies on industry and trade, investment and employment rates have not increased in the long run.

In Figyelő, László Kállay argues that subsidizing companies is a waste of public money. Between 2000 and 2011, Hungary spent 1.25 per cent of its GDP on industry and trade subsidies, well above an EU average of only 0.45 per cent. Hungary ranks second after Malta in terms of subsidies to these two sectors relative to their GDP, Kállay calculates. Despite generous financial support from the state, the investment rate per GDP declined from 22 per cent in 2000 to 15.5 per cent in 2011, while the employment rate stagnated. Such lavish subsidies did not help improve Hungary’s competitiveness either, he adds. In an aside, he quotes cross-EU comparative analyses to prove that there is no correlation between state subsidies, economic growth and employment rates. Kállay believes that these statistics show that state subsidies are not an effective means of stimulating economic growth.

Tags: , ,