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Should government investment be promoted ?

Author

Listed:
  • W. Melyn

    (National Bank of Belgium)

  • R. Schoonackers

    (National Bank of Belgium)

  • P. Stinglhamber

    (National Bank of Belgium)

  • L. Van Meensel

    (National Bank of Belgium)

Abstract

Public investment is currently at a low level in Belgium and in many other European countries. However, public investment has a very positive impact on economic activity and on an economy’s production potential. It is therefore advisable to boost that investment, though of course without impairing the consolidation of public finances necessary to safeguard their sustainability. The article offers an overview of public investment and the initiatives for promoting it. A first section analyses the components of public investment, describes the trend in that investment and compares the situation in Belgium with the European picture. A second section examines the macroeconomic impact of public investment and sets out numerous arguments explaining why that investment needs to be increased. The last section looks at the various possible ways of encouraging an increase in public investment, which is desirable in the current circumstances. The article ends with some conclusions. As regards the statistical treatment of investment under the ESA 2010 methodological framework, the basic rules are clear and it is not desirable to redraft them. As regards the application of the European fiscal rules under the Stability and Growth Pact, serious consideration should be given to revising the way in which public investment is taken into account, with a view to more favourable treatment of that expenditure. This could be done by replacing investment expenditure with the amortisation of public investment when determining the relevant budget balance.

Suggested Citation

  • W. Melyn & R. Schoonackers & P. Stinglhamber & L. Van Meensel, 2016. "Should government investment be promoted ?," Economic Review, National Bank of Belgium, issue ii, pages 99-113, september.
    • Handle: RePEc:nbb:ecrart:y:2016:m:september:i:ii:p:99-113
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    File URL: https://www.nbb.be/en/articles/should-public-investment-be-boosted
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    References listed on IDEAS

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    1. Gomes, S. & Jacquinot, P. & Pisani, M., 2012. "The EAGLE. A model for policy analysis of macroeconomic interdependence in the euro area," Economic Modelling, Elsevier, vol. 29(5), pages 1686-1714.
    2. Blanchard, Olivier & Giavazzi, Francesco, 2004. "Improving the SGP Through a Proper Accounting of Public Investment," CEPR Discussion Papers 4220, C.E.P.R. Discussion Papers.
    3. Abiad (ADB), Abdul & Furceri (IMF and University of Palermo), Davide & Topalova (IMF), Petia, 2016. "The macroeconomic effects of public investment: Evidence from advanced economies," Journal of Macroeconomics, Elsevier, vol. 50(C), pages 224-240.
    4. Achim Truger, 2015. "Implementing the golden rule for public investment in Europe," Working Paper Reihe der AK Wien - Materialien zu Wirtschaft und Gesellschaft 138, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik.
    5. Achim Truger, 2015. "Implementing the Golden Rule for Public Investment in Europe: Safeguarding Public Investment and Supporting the Recovery. WWWforEurope Policy Paper No. 22," WIFO Studies, WIFO, number 57898, April.
    6. Pedro R.D. Bom & Jenny E. Ligthart, 2014. "What Have We Learned From Three Decades Of Research On The Productivity Of Public Capital?," Journal of Economic Surveys, Wiley Blackwell, vol. 28(5), pages 889-916, December.
    7. P. Butzen & S. Cheliout & E. De Prest & S. Ide & W. Melyn, 2016. "Why is investment in the euro area continuing to show only weak recovery ?," Economic Review, National Bank of Belgium, issue ii, pages 81-98, september.
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    Citations

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    Cited by:

    1. P. Butzen & S. Cheliout & N. Cordemans & E. De Prest & W. Melyn & L. Van Meensel & S. Van Parys, 2017. "Towards a new policy mix in the euro area ?," Economic Review, National Bank of Belgium, issue iii, pages 63-91, December.
    2. P. Butzen & S. Cheliout & E. De Prest & S. Ide & W. Melyn, 2016. "Why is investment in the euro area continuing to show only weak recovery ?," Economic Review, National Bank of Belgium, issue ii, pages 81-98, september.
    3. M. Kasongo Kashama, 2016. "Helicopter money and debt-financed fiscal stimulus : one and the same thing ?," Economic Review, National Bank of Belgium, issue iii, pages 31-40, December.

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    More about this item

    Keywords

    public investment; investment multipliers; Stability and Growth Pact; Belgium; Europe.;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • 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
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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