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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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  • 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:

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    6. 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.
    7. 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.
    8. 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.
    9. 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.
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    12. Hans Pitlik, 2010. "Fiscal Governance and Government Investment in Europe since the 1990s," WIFO Working Papers 370, WIFO.
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    14. 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.
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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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