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Public Investment and Budgetary Consolidation in Portugal

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  • Alfredo M. Pereira

    ()
    (Department of Economics, College of William and Mary)

  • Maria de F�tima Pinho

    ()
    (Instituto Superior de Contabilidade e Administra��o)

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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Bibliographic Info

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
Date of revision:
Handle: RePEc:cwm:wpaper:41

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

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  18. Alfredo M. Pereira & Maria de F�tima Pinho, 2006. "Public Investment, Economic Performance and Budgetary Consolidation: VAR Evidence for the 12 Euro Countries," Working Papers 40, Department of Economics, College of William and Mary.
  19. Michele Boldrin & Fabio Canova, 2001. "Inequality and convergence in Europe's regions: reconsidering European regional policies," Economic Policy, CEPR & CES & MSH, vol. 16(32), pages 205-253, 04.
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