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Secular Decline in Public Investment: are National Fiscal Rules to Blame?

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  • Olegs Tkacevs

    (Bank of Latvia)

Abstract

This study investigates the impact of national fiscal rules on public investment policy. Using data of 35 OECD countries for the period 1995–2015, the paper provides evidence of a negative effect of expenditure rules on the level and share of government investment expenditure in total outlays, particularly in economic affairs. The effect of budget balance rules is less certain and seems to stem from those rules that do not explicitly exclude investment from the assessment. The coefficient estimates however imply a relatively low magnitude of the negative effect of fiscal rules. Overall, our paper suggests that, while loosening fiscal rules will not solve the problem of underinvestment, properly designed rules can help to protect public capital stock to some extent only.

Suggested Citation

  • Olegs Tkacevs, 2020. "Secular Decline in Public Investment: are National Fiscal Rules to Blame?," Working Papers 2020/04, Latvijas Banka.
    • Handle: RePEc:ltv:wpaper:202004
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    File URL: https://datnes.latvijasbanka.lv/papers/wp_4_2020_en.pdf
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    More about this item

    Keywords

    fiscal rules; government expenditure; public investment; panel analysis;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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