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Do fiscal rules decrease public investment? Evidence from European panel data

Author

Listed:
  • Sebastiaan Wijsman

    (Economics Department, Federal University of Minas Gerais, Belo Horizonte, Brazil)

  • Christophe Crombez

    (Leicester Castle Business School, De Montfort University, Leicester, UK)

Abstract

This paper studies the effects of fiscal rules on public investment. Economists argue that fiscal rules decrease public investment, as it is easier for governments to lower public investment than current expenditures. This paper presents an empirical assessment of the relationship between fiscal rules and public investment using European panel data covering the 1997–2016 period. In contrast to previous work, we focus on national fiscal rules and use the European Commission's Fiscal Rules Strength Index to measure the constraints imposed on public finances. This index captures 230 national fiscal rules and reflects the annual strength of fiscal rules in each European Union member state. In line with our expectations, we find that fiscal rules decrease public investment. We run some additional models in which the results are mixed.

Suggested Citation

  • Sebastiaan Wijsman & Christophe Crombez, 2021. "Do fiscal rules decrease public investment? Evidence from European panel data," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 18(1), pages 55-76, April.
    • Handle: RePEc:elg:ejeepi:v:18:y:2021:i:1:p55-76
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    References listed on IDEAS

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    1. Csaba G. Tóth, 2019. "Valuable legacy? The effect of inherited fiscal rules," Public Choice, Springer, vol. 178(1), pages 3-30, January.
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    Cited by:

    1. Brändle, Thomas & Elsener, Marc, 2023. "Do fiscal rules matter? A survey on recent evidence," Working papers 2023/07, Faculty of Business and Economics - University of Basel.

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    More about this item

    Keywords

    public investment; fiscal rules;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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