The link between spending and intermediate outputs reflects the cost of procuring and producing the intermediate outputs, that is, issues of cost effectiveness. Countries may also find that their education and health outcomes are low in relation to the available intermediate outputs—in this paper this is referred to as system inefficiency. See Appendix I for more details on these concepts. For the most part, the relatively low average spending efficiency in G7 countries seems to reflect issues of cost effectiveness, at least in tertiary education and health. Table 4 shows that the majority of G7 countries have better system.
