Government Investment and the European Stability and Growth Pact
AbstractWe consider the effect of excluding government investment from the deficit subject to the limits of the European Stability and Growth Pact. In the model we consider, residents of a given country discount future costs and benefits of government spending more than efficiency would dictate, because they fail to take into account the portion that will accrue to people that have not yet been born or immigrated into the country. It is thus in principle desirable to design budget rules that favor long-term investment (by allowing more borrowing) over other government spending that only carries short-term benefits. However, given the low rates of population growth, mortality, and mobility across European countries, we find that the distortions arising from treating all government spending equally are likely to be modest. We also show that these modest distortions can be alleviated only if net government investment is excluded from the deficit computation; excluding gross investment may even be counterproductive, as it promotes overspending in government capital.
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.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13200.
Date of creation: Jun 2007
Date of revision:
Publication status: published as Marco Bassetto & Vadym Lepetyuk, 2007. "Government investment and the European stability and growth pact," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q III, pages 33-43.
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Other versions of this item:
- Marco Bassetto & Vadym Lepetyuk, 2007. "Government investment and the European stability and growth pact," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q III, pages 33-43.
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
- H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
- H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-07-07 (All new papers)
- NEP-EEC-2007-07-07 (European Economics)
- NEP-MAC-2007-07-07 (Macroeconomics)
- NEP-PBE-2007-07-07 (Public Economics)
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.:
- V.V. Chari & Patrick J. Kehoe, 2004.
"On the Desirability of Fiscal Constraints in a Monetary Union,"
NBER Working Papers
10232, National Bureau of Economic Research, Inc.
- V.V. Chari & Patrick J. Kehoe, 2003. "On the desirability of fiscal constraints in a monetary union," Staff Report 330, Federal Reserve Bank of Minneapolis.
- Dixit, Avinash & Lambertini, Luisa, 2001. "Monetary-fiscal policy interactions and commitment versus discretion in a monetary union," European Economic Review, Elsevier, vol. 45(4-6), pages 977-987, May.
- 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.
- Barro, Robert J, 1979.
"On the Determination of the Public Debt,"
Journal of Political Economy,
University of Chicago Press, vol. 87(5), pages 940-71, October.
- Marco Bassetto & Thomas Sargent, 2005.
"Politics and Efficiency of Separating Capital and Ordinary Government Budgets,"
NBER Working Papers
11030, National Bureau of Economic Research, Inc.
- Marco Bassetto & Thomas J Sargent, 2006. "Politics and Efficiency of Separating Capital and Ordinary Government Budgets," The Quarterly Journal of Economics, MIT Press, vol. 121(4), pages 1167-1210, November.
- Marco Bassetto & Thomas J. Sargent, 2005. "Politics and efficiency of separating capital and ordinary Government budgets," Working Paper Series WP-05-07, Federal Reserve Bank of Chicago.
- Thomas J. Sargent & Marco Bassetto, 2004. "Politics and Efficiency of Separating Capital and Ordinary Government Budgets," 2004 Meeting Papers 3, Society for Economic Dynamics.
- Robert E. Lucas Jr. & Nancy L. Stokey, 1982.
"Optimal Fiscal and Monetary Policy in an Economy Without Capital,"
532, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Lucas, Robert Jr. & Stokey, Nancy L., 1983. "Optimal fiscal and monetary policy in an economy without capital," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 55-93.
- Assar Lindbeck & Dirk Niepelt, 2005.
"Improving the SGP: Taxes and Delegation rather than Fines,"
CESifo Working Paper Series
1389, CESifo Group Munich.
- Lindbeck, Assar & Niepelt, Dirk, 2004. "Improving the SGP: Taxes and Delegation rather than Fines," Working Paper Series 633, Research Institute of Industrial Economics.
- Lindbeck, Assar & Niepelt, Dirk, 2004. "Improving the SGP: Taxes and Delegation Rather than Fines," Seminar Papers 733, Stockholm University, Institute for International Economic Studies.
- Barro, Robert J., 1974.
"Are Government Bonds Net Wealth?,"
3451399, Harvard University Department of Economics.
- 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.
- Weil, Philippe, 1989. "Overlapping families of infinitely-lived agents," Journal of Public Economics, Elsevier, vol. 38(2), pages 183-198, March.
- Beetsma, Roel & Uhlig, Harald, 1999. "An Analysis of the Stability and Growth Pact," Economic Journal, Royal Economic Society, vol. 109(458), pages 546-71, October.
- Marco Bassetto & Leslie McGranahan, 2011.
"On the Relationship Between Mobility, Population Growth, and Capital Spending in the United States,"
NBER Working Papers
16970, National Bureau of Economic Research, Inc.
- Marco Bassetto & Leslie McGranahan, 2009. "On the relationship between mobility, population growth, and capital spending in the United States," Working Paper Series WP-09-25, Federal Reserve Bank of Chicago.
- Leslie McGranahan & Marco Bassetto, 2010. "On the Relationship between Mobility, Population Growth, and Capital Spending in the United States," 2010 Meeting Papers 229, Society for Economic Dynamics.
- Marco Bassetto, 2009. "The Research Agenda: Marco Bassetto on the Quantitative Evaluation of Fiscal Policy Rules," EconomicDynamics Newsletter, Review of Economic Dynamics, vol. 10(2), April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.