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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. 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.
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  3. 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.
  4. Philip Arestis & Malcolm Sawyer, 2003. "Reinventing fiscal policy," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 26(1), pages 3-25, October.
  5. David Aschauer, 1988. "Is public expenditure productive?," Staff Memoranda 88-7, Federal Reserve Bank of Chicago.
  6. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S103-26, October.
  7. Gilbert Colletaz & Christophe Hurlin, 2006. "Threshold Effects of the Public Capital Productivity : An International Panel Smooth Transition Approach," Working Papers halshs-00008056, HAL.
  8. 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.
  9. 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.
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  11. 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.
  12. Jerome Creel, 2003. "Ranking Fiscal Policy Rules: the Golden Rule of Public Finance vs. the Stability and Growth Pact," Documents de Travail de l'OFCE 2003-04, Observatoire Francais des Conjonctures Economiques (OFCE).
  13. Thomas Dalsgaard & Alain de Serres, 1999. "Estimating Prudent Budgetary Margins for 11 EU Countries: A Simulated SVAR Model Approach," OECD Economics Department Working Papers 216, OECD Publishing.
  14. 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.
  15. 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.
  16. 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.
  17. Coricelli, Fabrizio & Ercolani, Valerio, 2002. "Cyclical and Structural Deficits on the Road to Accession: Fiscal Rules for an Enlarged European Union," CEPR Discussion Papers 3672, C.E.P.R. Discussion Papers.
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Citations

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Cited by:
  1. Sergio Jiménez Ramírez & Jaime Sanaú Villarroya, 2011. "Infraestructuras y productividad industrial en Colombia," REVISTA DESARROLLO Y SOCIEDAD, UNIVERSIDAD DE LOS ANDES-CEDE.
  2. Jérôme Creel & Paul Hubert & Francesco Saraceno, 2013. "Assessing future sustainability of french public finances," Sciences Po publications 2013-11, Sciences Po.
  3. 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.
  4. 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.
  5. 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.
  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. repec:spo:wpecon:info:hdl:2441/f6h8764enu2lskk9p5488g8pn is not listed on IDEAS

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