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Government investment and the European stability and growth pact

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  • Marco Bassetto
  • Vadym Lepetyuk

Abstract

The authors analyze whether it makes sense to treat public investment spending differently from other government spending when applying the deficit constraints mandated within the single European currency area. Given the low rates of population growth, mobility, and mortality in European countries, they find that excluding public investment from the computation of the deficit ceiling has only moderate implications for the current generations’ spending choices. They also show that excluding net investment yields better outcomes than excluding gross investment.

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Bibliographic Info

Article provided by Federal Reserve Bank of Chicago in its journal Economic Perspectives.

Volume (Year): (2007)
Issue (Month): Q III ()
Pages: 33-43

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Handle: RePEc:fip:fedhep:y:2007:i:qiii:p:33-43:n:v.31no.3

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Keywords: Investments ; European Monetary System (Organization);

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References

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  1. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
  2. Weil, Philippe, 1989. "Overlapping families of infinitely-lived agents," Journal of Public Economics, Elsevier, vol. 38(2), pages 183-198, March.
  3. Lindbeck, Assar & Niepelt, Dirk, 2004. "Improving the SGP: Taxes and Delegation Rather than Fines," Seminar Papers 733, Stockholm University, Institute for International Economic Studies.
  4. Beetsma, Roel & Uhlig, Harald, 1999. "An Analysis of the Stability and Growth Pact," Economic Journal, Royal Economic Society, vol. 109(458), pages 546-71, October.
  5. Marco Bassetto & Thomas J. Sargent, 2005. "Politics and efficiency of separating capital and ordinary Government budgets," Working Paper Series WP-05-07, Federal Reserve Bank of Chicago.
  6. V.V. Chari & Patrick J. Kehoe, 2004. "On the Desirability of Fiscal Constraints in a Monetary Union," NBER Working Papers 10232, National Bureau of Economic Research, Inc.
  7. Blanchard, Olivier J & Giavazzi, Francesco, 2004. "Improving the SGP Through a Proper Accounting of Public Investment," CEPR Discussion Papers 4220, C.E.P.R. Discussion Papers.
  8. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-71, October.
  9. Fabrizio Balassone & Daniele Franco, 2000. "Public investment, the Stability Pact and the ‘golden rule’," Fiscal Studies, Institute for Fiscal Studies, vol. 21(2), pages 207-229, June.
  10. Robert E. Lucas Jr. & Nancy L. Stokey, 1982. "Optimal Fiscal and Monetary Policy in an Economy Without Capital," Discussion Papers 532, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  11. Dixit, Avinash & Lambertini, Luisa, 2001. "Monetary-fiscal policy interactions and commitment versus discretion in a monetary union," European Economic Review, Elsevier, vol. 45(4-6), pages 977-987, May.
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Cited by:
  1. Leslie McGranahan & Marco Bassetto, 2010. "On the Relationship between Mobility, Population Growth, and Capital Spending in the United States," 2010 Meeting Papers 229, Society for Economic Dynamics.
  2. Marco Bassetto, 2009. "The Research Agenda: Marco Bassetto on the Quantitative Evaluation of Fiscal Policy Rules," EconomicDynamics Newsletter, Review of Economic Dynamics, vol. 10(2), April.

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