Three small essays on public investment: economic rationales, the EU fiscal framework and some statistical comparisons

Governments undertake public investments for a number of reasons. First, spending on public investment is a means to foster economic growth, in the short run by increasing aggregate demand and in the long run by (potentially) increasing growth potential. Second, public investments can be justified by the presence of market failures. And finally, they can be undertaken due to fairness objectives. Given the growth-enhancing impact of public investment expenditure, the EU has taken several initiatives to increase the low and, during the crisis, falling level of public investment in the EU. Most prominently, an investment clause was introduced into the Stability and Growth Pact (SGP), and the Investment Plan for Europe was launched. This can be considered an (albeit imperfect) substitute for the “golden rule” advocated by its proponents since the launch of the SGP. The ratio of government investment in Austria, at about 3% of GDP, is relatively far above that of Germany (around 2% of GDP), and has recently surpassed the euro area average. However, these figures are somewhat distorted by different sector classifications in the areas of transport, hospitals and municipal services.