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Stimulating avenues: EIB loans and returns to Public Investment

Author

Listed:
  • Morteza Ghomi

    (BANCO DE ESPAÑA)

  • Evi Pappa

    (UNIVERSIDAD CARLOS III DE MADRID AND CEPR)

Abstract

We study the macroeconomic effects of persistent public investment shocks using a local-projection instrumental-variables framework and European data. For identification, we exploit European Investment Bank loans for public infrastructure projects and address potential endogeneity in loan approval with an inverse-probability-weighted regression adjustment estimator. Public investment shocks raise employment and output in the medium term, without crowding out private investment or consumption, or generating inflation or an additional debt burden. The cumulative output multiplier reaches 3.38 after five years and is significant and larger when credit conditions are favorable. We report significant positive spillover effects from public infrastructure spending on both output and employment.

Suggested Citation

  • Morteza Ghomi & Evi Pappa, 2026. "Stimulating avenues: EIB loans and returns to Public Investment," Working Papers 2610, Banco de España.
    • Handle: RePEc:bde:wpaper:2610
    DOI: https://doi.org/10.53479/42645
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    Keywords

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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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