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Factor mobility, government debt and the decline in public investment

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  • Friedrich Heinemann

Abstract

This paper tries to explain the declining level of public investment in OECD countries. The theoretical framework hints to the relevance of a number of demand and supply factors – ranging from the yield of public investment to institutions like the EU deficit limits. The econometric results indicate that the decline is largely due to two developments: First to the pile-up of public debt since the 70s which in the 90s severely restricted ability to finance new investment. Second to the increasing mobility of factors that has added to the financing difficulties. In contrast to that neither the privatisation process nor EU deficit restrictions of the Maastricht Treaty can explain the decline.
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Suggested Citation

  • Friedrich Heinemann, 2006. "Factor mobility, government debt and the decline in public investment," International Economics and Economic Policy, Springer, vol. 3(1), pages 11-26, April.
    • Handle: RePEc:kap:iecepo:v:3:y:2006:i:1:p:11-26
    DOI: 10.1007/s10368-005-0043-z
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    Cited by:

    1. Nazim Belhocine & La-Bhus Fah Jirasavetakul, 2020. "Lessons from Two Public Sector Reforms in Italy," IMF Working Papers 2020/040, International Monetary Fund.
    2. Ibrahim Ari & Muammer Koc, 2018. "Sustainable Financing for Sustainable Development: Understanding the Interrelations between Public Investment and Sovereign Debt," Sustainability, MDPI, vol. 10(11), pages 1-25, October.
    3. Alfons J. Weichenrieder & Markus Kerber & Alfons Weichenrieder, 2014. "Private Investoren für öffentliche Projekte: Schattenhaushalt oder Notwendigkeit?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 67(22), pages 03-08, November.
    4. Ryszard Kata & Magdalena Cyrek & Małgorzata Wosiek, 2024. "The Significance of the Financial Situation of Local Government Units for Their Energy Transition Activities: The Case of the Podkarpackie Region," Energies, MDPI, vol. 17(11), pages 1-23, June.
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    6. Alexandru Minea & Patrick Villieu, 2009. "Borrowing to Finance Public Investment? The ‘Golden Rule of Public Finance’ Reconsidered in an Endogenous Growth Setting," Fiscal Studies, John Wiley & Sons, vol. 30(1), pages 103-133, March.
    7. Philipp Jäger & Torsten Schmidt, 2015. "The Political Economy of Public Investment when Population is Aging – A Panel Cointegration Analysis," Ruhr Economic Papers 0557, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    8. Karsten Staehr & Katri Urke, 2022. "The European structural and investment funds and public investment in the EU countries," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 49(4), pages 1031-1062, November.
    9. Mattia Osvaldo Picarelli & Willem Vanlaer & Wim Marneffe, 2019. "Does Public Debt Produce a Crowding Out Effect for Public Investment in the EU?," Working Papers 36, European Stability Mechanism.
    10. Narcis BRANDUSESCU, 2018. "The Analysys Of Romanian Government Investment Expenditure In 2008 – 2017 Interval," Scientific Bulletin - Economic Sciences, University of Pitesti, vol. 17(3), pages 119-124.
    11. Jäger, Philipp & Schmidt, Torsten, 2016. "The political economy of public investment when population is aging: A panel cointegration analysis," European Journal of Political Economy, Elsevier, vol. 43(C), pages 145-158.
    12. Alfred Greiner, 2007. "An Endogenous Growth Model With Public Capital And Sustainable Government Debt," The Japanese Economic Review, Japanese Economic Association, vol. 58(3), pages 345-361, September.
    13. Anselm Komla Abotsi, 2024. "Fiscal policy sustainability and public debt in Africa," SN Business & Economics, Springer, vol. 4(1), pages 1-18, January.
    14. Fabienne Dascher-Preising & Alfred Greiner, 2024. "Human Capital Formation With Heterogeneous Agents, Sustainable Debt Policies and Growth: Who Benefits from Fiscal Policy Rules?," Annals of Economics and Finance, Society for AEF, vol. 25(1), pages 175-212, May.
    15. Anselm K. Abotsi, 2023. "Factors influencing the ability to honour debt repayment obligations by Governments in Africa," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 876-885, January.
    16. Kellermann, Kersten, 2007. "Debt financing of public investment: On a popular misinterpretation of "the golden rule of public sector borrowing"," European Journal of Political Economy, Elsevier, vol. 23(4), pages 1088-1104, December.
    17. Alfred Greiner, 2008. "Does it Pay to Have a Balanced Government Budget?," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(3), pages 460-476, September.
    18. Hans Pitlik, 2010. "Fiscal Governance and Government Investment in Europe since the 1990s," WIFO Working Papers 370, WIFO.

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    More about this item

    Keywords

    Public investment; Factor mobility; Globalisation; Public debt; OECD; EU; H50; H63; H87;
    All these keywords.

    JEL classification:

    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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