Impact of Healthcare, Education, and Defence Spending on Canada

Research Question:

Policymakers have paid close attention to healthcare, education, as well as defence expenditure in recent decades because of the influence it might have on important economic metrics such as GDP growth, along with inflation, as well as the unemployment rate. With ever-increasing government spending, it's more important than ever to know how certain expenditures affect the economy as a whole.

This study is guided by the following core research question:

What long-term effects do healthcare,along with education, as well as defence budget allocations have on inflation, along with GDP growth, as well as the unemployment rate throughout Canada?

The need to evaluate fiscal policies' efficacy in fostering economic development, improving society, and stabilising macroeconomic circumstances is what motivates this study subject. The subsequent sub-questions are the primary emphasis of the research:

 Does a rise in healthcare expenditure lead to an increase in GDP?

 Could the amount of money spent on education have an effect on unemployment rate?

 How does spending on defence affect inflation?

Examining the answers to these questions will perhaps provide light on how various public sector expenditures have fared.

Literature Review

For many years, economists have studied the correlation among public expenditure along with economic growth. The impacts of government expenditure on healthcare, education, and defence on macroeconomic indices including GDP growth, along with unemployment, as well as inflation are the primary emphasis of literature review, which synthesises current research along with conclusions.

Public Investment across Healthcare along with Economic development:

New studies highlight the importance of healthcare expenditure as an essential part about public investment that boosts economic development in long run. Research shows that spending more on healthcare improves public health, which in turn boosts productivity in workplace. They claim healthy workers boost GDP because they are able to participate across economic activities more fully (Koujanian, 2024). Consistent with other studies, this one found that healthcare expenditures had a beneficial effect on GDP growth in a number of OECD nations. Nevertheless, these impacts were more noticeable in countries with all-encompassing healthcare systems, indicating that boosting expenditure alone is insufficient; the effectiveness as well as organisation in healthcare systems remain equally critical factors (Wu et al, 2021).

Education Spending along with Unemployment:

The research on education investment emphasises that it significantly reduces unemployment rates. Investments in education pay off handsomely via reduced unemployment and increased economic growth, according to a new meta-analysis.(Wang, 2024) Their findings have significant implications for employment in the long run, suggesting that a ten percent rise across GDP per capita may be achieved with only one more year of education (Chang, 2021). Education also helps with one of the main causes of unemployment: skill mismatches throughout the job market. These results are consistent with the premise that focused investments in education might have a direct impact on job creation, as seen in the link between education expenditure as well as unemployment throughout dataset.

The function of Defence Spending in Economic development and Stability:

Recent studies have focused on the function of defence spending in fostering economic development and stability. Defence spending has the potential to promote economic activity through creating employment opportunities while offering support to companies associated with technology and manufacturing. The analysis shows that nations with strong defence industries tend to be able to weather economic storms better. Nonetheless, there is some complexity to the connection; contends that spending too much on defence may cut into other important sectors, like healthcare along with education, and slow down the economy in the long run (Gili et al, 2022). This conflict emphasises the need for fiscal restraint on the part of the government.

Keynesian View about Public expenditure:

Recent economic crises, especially the COVID-19 epidemic, have revived the Keynesian perspective for public expenditure. Spending more money by the government to boost demand as well as get the economy out of recession (Ullah et al, 2023). If stagnant economies are to be revitalised, they argue, public expenditure on healthcare, along with education, as well as infrastructure must increase. It is in line with the conclusions drawn from the study, which stress the need of greater government expenditure and other expansive fiscal strategies for a healthy economy, especially after major shocks.

Public expenditure along with Inflation:

Recent research has also addressed the issue of inflationary pressures associated with government expenditure. Examining the connection between government expenditure and inflation rates, we find that more expenditure may cause inflation in the near term, but the impact on the economy in the long run will depend on how well the funds are put into circulation. According to their findings, long-term price stability may be achieved by targeted expenditures in education as well as infrastructure, which reduce inflationary pressures as well as boost productivity (Hudson et al, 2021).

The intricate relationship between government expenditure as well as economic indicators is shown by the assessment of current research. Education investment is essential for lowering unemployment while promoting economic development, whereas healthcare spending has a substantial impact for public health as well as therefore, labour productivity. investment on defence has the ability to boost the economy, but it also runs the danger of jeopardising other vital areas of investment. When the economy is in a slump, the Keynesians' call for more government spending to help get things back on track is still widely heard and respected. In addition, thinking about how these investments might boost productive capacity is crucial for inflation management across context of increased public expenditure.

Several influential economic theories that clarify the connection among public expenditure as well as economic results provide the theoretical basis for our investigation. Keynesian economics, theory of human capital, along with the theory of public goods are the main frameworks used.

Theory of Human Capital:

Investments in people's education as well as training, according to this Theory, boost economic development by increasing productivity along with efficiency. This idea states that in order to be innovative, productive, and competitive in the global market, one must have a well-educated staff. Governments may reduce unemployment rates through making workers more employable via increased investment on education. The dataset's high negative association among education expenditure and unemployment rates lends credence to this concept. The results imply that when governments put money into education, it helps the economy as a whole and boosts people's economic opportunities.

Theory of Public Goods:

Government expenditure across healthcare as well as education may be viewed as an investment towards public goods which help society , according to this Theory. Because it improves people's health and ability to work, healthcare is a prime example of a public benefit. Spending on healthcare is on the rise because the government recognises that its citizens must have access to affordable medical treatment in order to keep productive workforce. Healthcare investments have significance for society wellbeing, but their influence on immediate economic production may be indirect as well as long-term, according to the poor relationship between healthcare expenditure and GDP growth. Instead of seeing healthcare as mere expenditure, this approach stresses the significance of seeing it as investment across human capital.

Keynesian Economics:

This school of thought offers a macroeconomic view, with an emphasis on how government expenditure may revive a flagging economy. Increased government spending, in accordance with Keynesian ideas, may stimulate the economy along with propel GDP growth, particularly in downturns. The dataset shows GDP growth rates that fluctuate, which is consistent with this idea and is especially noticeable throughout economic crises. Defence expenditure may not have an obvious effect on inflation, but it may help keep allied companies hiring, which in turn stabilises the economy.

Observation:

Healthcare Spending:

The amount spent on healthcare across Canada had a substantial growth from 45 billion Canadian dollars within 1990 towards 113 billion Canadian dollars in 2023. The government's unwavering dedication to the upkeep and enhancement of the nation's healthcare system is seen in this consistent increase. Public health expectations seem to be in sync with the rising expense of healthcare, which is driven by variables including an ageing population, along with technological advances in medicine, as well as inflationary pressures.

Nevertheless, the data show a modest negative association i.e., -0.13 across healthcare expenditure along with GDP growth. This finding implies that healthcare expenditure may not directly affect economic development in the near future, despite its crucial importance for a healthy workforce and lowering social expenditures related to bad health. Investments in healthcare often pay off in the long run via improved worker health and lifespan, although these effects may not show up in GDP growth numbers in the near term. Consequently, the effect on economic production may be less immediate and take longer to materialise, despite the substantial as well as steady rise in healthcare expenditure.

Investing in Education:

With CAD 30 billion by 1990 towards CAD 56 billion for 2023, education expenditure has also shown a predictable rising pattern. This growth highlights how crucial education is as a foundation for societal along with economic progress. Most notably, there is a very negative relationship between education expenditure along with unemployment rate of -0.69. Based on this correlation, it appears that unemployment rates likely to go down when the government spends more money on education.

This inverse relationship lends credence to human capital hypothesis, which claims lower unemployment rates are a direct result of higher levels of education as they boost workers' abilities along with employability. To ensure economic stability in long run, it is crucial to educate people so that they may enter the workforce having the skills employers are looking for as well as encourage innovation along with entrepreneurship. One possible goal of Canadian government's increased investment across education is to reduce the prevalence of unemployment, especially in times of economic instability, by preparing the workforce to adapt to new circumstances.

Defense Spending:

Canadian military spending has changed more dramatically during the studied period than healthcare and education expenditure. Defence expenditure has risen and fallen throughout the years, from 10 billiondollars across 1990 to a high of $24 billion across 2023, with increases driven by shifts in foreign policy and changes to national security policy. Defence spending does not significantly affect inflationary pressures, as seen by weakly positive correlation of 0.13 among the two variables.

Previous studies have shown that defence expenditure may boost certain economic areas like manufacturing and technology, but it usually doesn't cause inflation until it boosts demand enough. This finding is in line with other findings. It would seem that Canada's defence budget is well-managed along with has little inflationary consequences. While short-term economic measures like inflation may show the direct effects of defence spending, long-term effects like improvements across technology along with infrastructure may take longer to materialise.

Canadian economy has gone through expansions as well as contractions with regard to of GDP growth, according to economic indicators. Throughout the time, average growth rate for GDP was 2.06%. However, during worldwide recessions, such as the COVID-19 pandemic in 2020, GDP growth plunged to -5.2 percent. The unemployment rate has been at 7.74 percent on average, reaching its highest point during recessions. Inflation has been very mild, averaging 2.19 percent during the last 30 years, while it spiked to 6.8 percent in 2022 as a result of post-pandemic financial situation.

Findings:

Correlation Analysis:

A modest negative association is seen by the correlation coefficient of -0.13 between healthcare spending along with GDP growth. It seems that there is no direct correlation between rises in healthcare expenditure and GDP growth.

Correlation of -0.69 indicates a very negative association between education spending as well as the unemployment rate. This data suggests that investing in education has the potential to increase employment rates, to be a lower unemployment rate is linked with more expenditure on education.

A slight positive association is shown by the correlation around 0.13 between defence spending along with inflation rate. The direct effect of defence expenditure on inflation appears to be small.

Correlation Matrix:

There are clear connections between the various types of expenditure, as seen in the correlation matrix. Spending across healthcare, along with education, as well as defence all tend to rise in tandem over time, as seen by their strong correlation (r=0.99). It is believed that investing in public services lowers the unemployment rate since there is a negative correlation between unemployment rate as well as most types of government expenditure, especially education.

Inflationary pressures might not be caused by government spending for healthcare, education, as well as defence, since the Inflation Rate demonstrates a limited association with these spending factors.

Several important results on the relationship among healthcare, along with education, as well as defence spending by Canadian government as well as significant economic indicators such as GDP growth, along with unemployment rates, as well as inflation have been uncovered by analysing the dataset that covers public spending in Canada from 1990 towards 2023. The findings provide light on the impact of these spending on Canada's economy as a whole.

Healthcare Spending along with Economic Outcomes:

Healthcare expenditure and its impact on the Canadian economy have grown substantially over the last several decades, going from $45 billion around 1990 towards $113 billion around 2023. The slightly negative association between healthcare expenditure along with GDP growth equals -0.13, notwithstanding this significant investment. This shows that healthcare expenditure has a little impact on GDP growth right now, but is crucial for the public good along with the economy in the long run.

It seems that the yearly GDP numbers could be underestimating the advantages of healthcare expenditure, according to this analysis. The health of a population is an indirect contributor to economic productivity via healthcare investments; however, it may take some time for these impacts to become apparent. Instead of seeing healthcare spending simply a direct driver about economic growth, lawmakers would do well to see it as an essential part of social infrastructure.

Education Spending along with Unemployment Rates:

The dataset shows a very negative relationship i.e.e, -0.69 among education expenditure as well as unemployment rates. Unemployment fell as spending on education rose from 30 billion dollars for 1990 towards 56 billion dollars in 2023. This discovery lends credence to the human capital hypothesis, which states that spending money on education makes people more marketable to potential employers, which in turn reduces the unemployment rate.

Education has a vital role in building economic resilience, as this association shows. Government funding of education helps reduce unemployment along with prepares workers for changing economic needs by providing them with the skills they need. This research might provide policymakers with strong evidence to prioritise education in public investment in order to accomplish larger economic objectives.

Defense Spending along with Inflation:

The relationship between military expenditure and inflation: defence spending has changed over the years, rising gradually over10 billion dollars for 1990 towards 24 billion dollars in 2023. A marginally positive correlation of 0.13 among defence spending along with inflation suggests that defence expenditures do not significantly affect inflationary pressures. This indicates that Canada's defence spending has been consistent and under control, preventing the kind of drastic price rises that may occur from unplanned increases in government expenditures.

This research also shows that defence expenditure, while important for the country's safety, does not seem to have a major impact on general inflation. On the other hand, it might have unintended consequences that help the economy in the long run, such new technologies as well as jobs in adjacent fields.

Throughout the research period, Canada's GDP grew at an average rate about 2.06 percent, with notable declines throughout worldwide economic downturns like the financial crisis of 2008 along with 2020 COVID-19 epedemic, according to the broader economic landscape depicted by the dataset. Averaging 7.74 percent, the unemployment rate is a reflection of the difficulties caused by changes in the economy.

Spending on healthcare has risen sharply, but the effect on GDP growth has been somewhat small. This points to a complicated connection in which short-term economic outputs might not be a good indicator of society health. Government investment across education to improve labour capacities is critically needed, since education expenditure has shown more direct influence on lowering unemployment.

Conclusion:

The findings show that various forms of government expenditure have significant impacts on economic results. A decrease in the unemployment rate is mostly attributable to investments in education, while healthcare along with defence strengthen the economy over the long run. These results are critical for guiding future government policy as well as making investments that promote long-term economic development along with social wellbeing. Policymakers may maximise their influence across Canadian economy along with create conditions that encourage economic growth as well as improved quality about life for residents by understanding these links as well as allocating resources accordingly.

References:

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Wang, Z. (2024). A study on the relationships among foreign direct investment, innovation, and economic growth in European countries from 1998 to 2021.

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