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Is public capital productive in Europe?

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  • Jerome Creel
  • Gwenaelle Poilon

Abstract

This paper addresses the issue of whether and by how much public investment or public capital can increase GDP. In comparison with the literature on the subject, we apply many different methodologies to answer these questions. A vector autoregressive (VAR) model (for France, Italy, Germany, the UK and the USA), a panel composed of 6 European countries (Austria, Belgium, France, Germany, Italy and the Netherlands) and a regional panel (French regions) are estimated. Public investment is shown to be a significant determinant of output; this is also true for public capital but to a lesser extent than public investment with a VAR methodology. The size of the estimated coefficient is also more realistic than those obtained in the literature. This empirical result confirms that the focus of some economists on safeguarding the level of public investment is not misplaced. The debate on the introduction of a 'golden rule of public finance' in the European Monetary Union is legitimate in this respect.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal International Review of Applied Economics.

Volume (Year): 22 (2008)
Issue (Month): 6 ()
Pages: 673-691

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Handle: RePEc:taf:irapec:v:22:y:2008:i:6:p:673-691

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Related research

Keywords: public capital; public investment; VAR; panel data; European countries;

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References

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  1. Gilbert Colletaz & Christophe Hurlin, 2006. "Threshold Effects of the Public Capital Productivity : An International Panel Smooth Transition Approach," Working Papers halshs-00008056, HAL.
  2. Michael Bleaney & Norman Gemmell & Richard Kneller, 2001. "Testing the endogenous growth model: public expenditure, taxation, and growth over the long run," Canadian Journal of Economics, Canadian Economics Association, vol. 34(1), pages 36-57, February.
  3. Federico Bonaglia & Eliana La Ferrara & Massimiliano Marcellino, . "Public Capital and Economic Performance: Evidence from Italy," Working Papers 163, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  4. David Aschauer, 1988. "Is public expenditure productive?," Staff Memoranda 88-7, Federal Reserve Bank of Chicago.
  5. Alan S. Blinder, 2000. "Central-Bank Credibility: Why Do We Care? How Do We Build It?," American Economic Review, American Economic Association, vol. 90(5), pages 1421-1431, December.
  6. Richard H. Clarida, 1993. "International Capital Mobility, Public Investment and Economic Growth," NBER Working Papers 4506, National Bureau of Economic Research, Inc.
  7. van Aarle, Bas & Garretsen, Harry, 2003. "Keynesian, non-Keynesian or no effects of fiscal policy changes? The EMU case," Journal of Macroeconomics, Elsevier, vol. 25(2), pages 213-240, June.
  8. A. Lans Bovenberg & Jeroen J. M. Kremers & Paul R. Masson, 1991. "Economic and Monetary Union in Europe and Constraints on National Budgetary Policies," IMF Staff Papers, Palgrave Macmillan, vol. 38(2), pages 374-398, June.
  9. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
  10. Bovenberg, A L & de Jong, A H M, 1997. "The Road to Economic and Monetary Union," Kyklos, Wiley Blackwell, vol. 50(1), pages 83-109.
  11. 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.
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Citations

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Cited by:
  1. Valter Di Giacinto & Giacinto Micucci & Pasqualino Montanaro, 2012. "Network effects of public transport infrastructure: Evidence on Italian regions," Papers in Regional Science, Wiley Blackwell, vol. 91(3), pages 515-541, 08.
  2. Pedro R.D. Bom & Jenny E. Ligthart, 2009. "How Productive is Public Capital? A Meta-Regression Analysis," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0912, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  3. Valter Di Giacinto & Giacinto Micucci & Pasqualino Montanaro, 2012. "The Macroeconomic Impact of Infrastructures: A Literature Review and Empirical Analysis on the Case of Italy," QA - Rivista dell'Associazione Rossi-Doria, Associazione Rossi Doria, issue 1, March.
  4. Sergio Jiménez Ramírez & Jaime Sanaú Villarroya, 2011. "Infraestructuras y productividad industrial en Colombia," REVISTA DESARROLLO Y SOCIEDAD, UNIVERSIDAD DE LOS ANDES-CEDE.
  5. Jérôme Creel & Paul Hubert & Francesco Saraceno,, 2013. "Assessing future sustainability of french public finances," Documents de Travail de l'OFCE 2013-11, Observatoire Francais des Conjonctures Economiques (OFCE).
  6. Linus Mattauch & Jan Siegmeier & Ottmar Edenhofer & Felix Creutzig, 2013. "Financing Public Capital through Land Rent Taxation: A Macroeconomic Henry George Theorem," CESifo Working Paper Series 4280, CESifo Group Munich.
  7. Jérôme Creel & Paul Hubert & Francesco Saraceno, 2013. "Assessing future sustainability of french public finances," Sciences Po publications 2013-11, Sciences Po.

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