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Factor mobility, government debt and the decline in public investment

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  • Friedrich Heinemann

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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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    References listed on IDEAS

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    1. Jordi Galí & Roberto Perotti, 2003. "Fiscal policy and monetary integration in Europe," Economic Policy, CEPR;CES;MSH, vol. 18(37), pages 533-572, October.
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    6. Fabrizio Balassone & Daniele Franco, 2000. "Public investment, the Stability Pact and the ‘golden rule’," Fiscal Studies, Institute for Fiscal Studies, pages 207-229.
    7. Beck, Thorsten & Clarke, George & Groff, Alberto & Keefer, Philip & Walsh, Patrick, 2000. "New tools and new tests in comparative political economy - the database of political institutions," Policy Research Working Paper Series 2283, The World Bank.
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    10. Günther G. Schulze & Heinrich W. Ursprung, 1999. "Globalisation of the Economy and the Nation State," The World Economy, Wiley Blackwell, vol. 22(3), pages 295-352, May.
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    Cited by:

    1. Alfons J. Weichenrieder & Markus Kerber, 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.
    2. repec:zbw:rwirep:0557 is not listed on IDEAS
    3. 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.
    4. 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.
    5. 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.
    6. 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.
    7. Hans Pitlik, 2010. "Fiscal Governance and Government Investment in Europe since the 1990s," WIFO Working Papers 370, WIFO.

    More about this item

    Keywords

    Public investment; Factor mobility; Globalisation; Public debt; OECD; EU; H50; H63; H87;

    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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