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Evolution And Determinants Of Public Investment In Europe

  • Valila, Timo

    ()

    (European Investment Bank, Economic and Financial Studies)

  • Mehrotra, Aaron

    (European University Institute)

We examine the evolution of public investment and public capital stocks in Europe during the past three decades. Against this background, we employ an array of econometric techniques to assess the macroeconomic determinants of public investment, with a special focus on its long-term trend. We find that public investment has been determined by national income, the stance of budgetary policies, and fiscal sustainability considerations. Neither the cost of financing nor the fiscal rules embodied in EMU have had a systemic impact on public investment. The significant downtrend that characterises the evolution of public investment, measured in relation to GDP, in non-cohesion countries is chiefly determined by drawn-out episodes of fiscal consolidation, unrelated to EMU.

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Paper provided by European Investment Bank, Economics Department in its series Economic and Financial Reports with number 2005/1.

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Length: 37 pages
Date of creation: 31 Jan 2005
Date of revision:
Handle: RePEc:ris:eibefr:2005_001
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  1. Christophe Kamps, 2004. "New Estimates of Government Net Capital Stocks for 22 OECD Countries 1960-2001," IMF Working Papers 04/67, International Monetary Fund.
  2. Jakob Haan & Jan Sturm & Bernd Sikken, 1996. "Government capital formation: Explaining the decline," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 132(1), pages 55-74, March.
  3. Saikkonen, Pentti & Lutkepohl, Helmut, 2000. "Testing for the Cointegrating Rank of a VAR Process with Structural Shifts," Journal of Business & Economic Statistics, American Statistical Association, vol. 18(4), pages 451-64, October.
  4. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
  5. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
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