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Public Investment and Budgetary Consolidation in Portugal

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Author Info
Alfredo M. Pereira () (Department of Economics, College of William and Mary)
Maria de Fátima Pinho () (Instituto Superior de Contabilidade e Administração)

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Abstract

In this paper we find that public investment in durable goods has a positive effect on long-term economic performance in Portugal. We also find that these positive effects are not strong enough for public investment to pay for itself in the form of future tax revenues. Therefore, cuts in public investment in durable goods, although costly in terms of long-term economic performance seem to be an effective way of alleviating pressure on the public budget. It is important to note, however, that this general result contrasts sharply with the evidence found in this paper for public investment in equipment, a small component of public investment in durable goods, as well as with evidence elsewhere for public investment in transportation infrastructures. For these, the effects on output are strong enough for public investment to pay for itself. Therefore, cuts in these two types of public investment, would have negative long-term economic effects as well as negative long-term budgetary effects. Clearly, not all public investment is created equal.

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Paper provided by Department of Economics, College of William and Mary in its series Working Papers with number 41.

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Length: 20 pages
Date of creation: 30 Aug 2006
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Handle: RePEc:cwm:wpaper:41

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Related research
Keywords: public investment; economic growth; budgetary consolidation; Portugal;

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Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
O52 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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References listed on IDEAS
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