Public investment: a remedy or a curse? Examining the Role of Public Investment for Macroeconomic Performance
AbstractThis paper explores the implications of public investment for macroeconomic performance within a simple two-period policymaking model. We show that under the balanced-budget rule, the contribution of public investment to future output plays a key role in determining its effects on macroeconomic performance. When policymakers resort to debt issue in financing expenditures, the attractiveness of public investment crucially depends on the return from capital spending relative to the cost of public borrowing. We also consider the case of a capital borrowing rule where only public investment could be financed by additional borrowing and find similar results. Our findings point to the key role of the quality of public investment in its impact on macroeconomic outcome and highlight the importance of efficient mechanisms for selection, implementation and monitoring of public investment projects in both developed and developing countries.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6139.
Date of creation: Feb 2007
Date of revision:
Contact details of provider:
Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
Find related papers by JEL classification:
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
- H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-03-03 (All new papers)
- NEP-MAC-2007-03-03 (Macroeconomics)
- NEP-PBE-2007-03-03 (Public Economics)
- NEP-PPM-2007-03-03 (Project, Program & Portfolio Management)
- NEP-PUB-2007-03-03 (Public Finance)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Perotti, Roberto, 1996. "Fiscal Consolidation in Europe: Composition Matters," American Economic Review, American Economic Association, vol. 86(2), pages 105-10, May.
- 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).
- Aschauer, David Alan, 1989.
"Does public capital crowd out private capital?,"
Journal of Monetary Economics,
Elsevier, vol. 24(2), pages 171-188, September.
- Ardagna, Silvia & Alesina, Alberto, 1998. "Tales of Fiscal Adjustment," Scholarly Articles 2579822, Harvard University Department of Economics.
- Antonio Estache, 1994. "World Development Report: Infrastructure for Development," ULB Institutional Repository 2013/44144, ULB -- Universite Libre de Bruxelles.
- David Aschauer, 1988.
"Is public expenditure productive?,"
88-7, Federal Reserve Bank of Chicago.
- 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.
- Eduardo Borensztein & Olivier Jeanne & Paolo Mauro & Jeromin Zettelmeyer & Marcos Chamon, 2005. "Sovereign Debt Structure for Crisis Prevention," IMF Occasional Papers 237, International Monetary Fund.
- Robert A.J. Dur & Ben D. Peletier & Otto H. Swank, 1997.
"The Effect of Fiscal Rules on Public Investment if Budget Deficits are Politically Motivated,"
Tinbergen Institute Discussion Papers
97-125/1, Tinbergen Institute.
- Robert A.J. Dur & Ben D. Peletier & Otto H. Swank, 1998. "The Effect of Fiscal Rules on Public Investment if Budget Deficits Are Politically Motivated," Public Economics 9801003, EconWPA, revised 25 Feb 1999.
- Morrison, Catherine J & Schwartz, Amy Ellen, 1996.
"State Infrastructure and Productive Performance,"
American Economic Review,
American Economic Association, vol. 86(5), pages 1095-1111, December.
- Beetsma, R.M.W.J. & Bovenberg, A.L., 1995.
"Does monetary unification lead to excessive debt accumulation,"
1995-112, Tilburg University, Center for Economic Research.
- Beetsma, Roel M. W. J. & Bovenberg, A. Lans, 1999. "Does monetary unification lead to excessive debt accumulation?," Journal of Public Economics, Elsevier, vol. 74(3), pages 299-325, December.
- Beetsma, R.M.W.J. & Bovenberg, A.L., 1995. "Does Monetary Unification Lead to Excessive Debt Accumulation?," DELTA Working Papers 95-23, DELTA (Ecole normale supérieure).
- Beetsma, Roel & Bovenberg, A Lans, 1995. "Does Monetary Unification Lead to Excessive Debt Accumulation?," CEPR Discussion Papers 1299, C.E.P.R. Discussion Papers.
- Ozkan, F Gulcin, 2000. " Who Wants an Independent Central Bank? Monetary Policy-Making and Politics," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(4), pages 621-43, December.
- Bovenberg, A.L. & Beetsma, R.M.W.J., 1997.
"Central Bank independence and public debt policy,"
Open Access publications from Tilburg University
urn:nbn:nl:ui:12-74443, Tilburg University.
- Isham, Jonathan & Kaufmann,Daniel, 1995.
"The forgotten rationale for policy reform : the productivity of investment projects,"
Policy Research Working Paper Series
1549, The World Bank.
- Jonathan Isham & Daniel Kaufmann, 1999. "The Forgotten Rationale For Policy Reform: The Productivity Of Investment Projects," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 149-184, February.
- Buiter, Willem H, 2001.
"Notes on 'A Code for Fiscal Stability.',"
Oxford Economic Papers,
Oxford University Press, vol. 53(1), pages 1-19, January.
- Pritchett, Lant, 1996. "Mind your P's and Q's : the cost of public investment is not the value of public capital," Policy Research Working Paper Series 1660, The World Bank.
- George Kopits, 2001. "Fiscal Rules: Useful Policy Framework or Unnecessary Ornament?," IMF Working Papers 01/145, International Monetary Fund.
- António Afonso & Ludger Schuknecht & Vito Tanzi, 2006.
"Public Sector Efficiency: Evidence for New EU Member States and Emerging Markets,"
2006/01, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon..
- Antonio Afonso & Ludger Schuknecht & Vito Tanzi, 2010. "Public sector efficiency: evidence for new EU member states and emerging markets," Applied Economics, Taylor and Francis Journals, vol. 42(17), pages 2147-2164.
- António Afonso & Ludger Schuknecht & Vito Tanzi, 2006. "Public sector efficiency: evidence for new EU member states and emerging markets," Working Paper Series 581, European Central Bank.
- Ismihan, Mustafa & Gulcin Ozkan, F., 2004. "Does central bank independence lower inflation?," Economics Letters, Elsevier, vol. 84(3), pages 305-309, September.
- 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.
- Stefan Mittnik & Thorsten Neumann, 2001. "Dynamic effects of public investment: Vector autoregressive evidence from six industrialized countries," Empirical Economics, Springer, vol. 26(2), pages 429-446.
- Alfredo M. Pereira, 2000. "Is All Public Capital Created Equal?," The Review of Economics and Statistics, MIT Press, vol. 82(3), pages 513-518, August.
- Meixing Dai & Moïse Sidiropoulos, 2010.
"Monetary and fiscal policy interactions with central bank transparency and public investment,"
Working Papers of BETA
2010-21, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
- Dai, Meixing & Sidiropoulos, Moïse, 2011. "Monetary and fiscal policy interactions with central bank transparency and public investment," Research in Economics, Elsevier, vol. 65(3), pages 195-208, September.
- Dai, Meixing & Sidiropoulos, Moïse, 2010. "Monetary and fiscal policy interactions with central bank transparency and public investment," MPRA Paper 23704, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.