A more growth-friendly mix of government expenditures will thus be even more important for countries currently in this situation. Having said that, I would like to discuss two areas I think meet the criteria for government action: human capital accumulation and mitigating climate change. To begin with, investment in human capital is essential for future growth.
As unfavorable demographic trends will have a negative impact on the growth of labor supply, future growth will be more dependent on productivity. Research shows that human capital is a key driver for productivity growth. Public investment is required, because of credit restrictions, which for example prevent access to education for disadvantaged groups, and externalities associated with investment in human capital.