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Evolution And Determinants Of Public Investment In Europe

Author

Listed:
  • Timo Valila

    (European Investment Bank, Economic and Financial Studies)

  • Aaron Mehrotra

    (European University Institute)

Abstract

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.

Suggested Citation

  • Timo Valila & Aaron Mehrotra, 2005. "Evolution And Determinants Of Public Investment In Europe," Economic and Financial Reports 2005/1, European Investment Bank, Economics Department.
    • Handle: RePEc:ris:eibefr:2005_001
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Rien Wagenvoort & Carlo de Nicola & Andreas Kappeler, 2010. "Infrastructure finance in Europe: Composition, evolution and crisis impact," EIB Papers 1/2010, European Investment Bank, Economics Department.
    2. Moulaye Bamba & Jean-Louis Combes & Alexandru Minea, 2020. "The effects of fiscal consolidations on the composition of government spending," Applied Economics, Taylor & Francis Journals, vol. 52(14), pages 1517-1532, March.
    3. Mr. Ivan Tchakarov & Mr. Roland Straub, 2007. "Assessing the Impact of a Change in the Composition of Public Spending: A DSGE Approach," IMF Working Papers 2007/168, International Monetary Fund.
    4. 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.
    5. Antonio Estache, 2010. "Infrastructure finance in developing countries: An overview," EIB Papers 8/2010, European Investment Bank, Economics Department.
    6. Agenor, Pierre-Richard & Moreno-Dodson, Blanca, 2006. "Public infrastructure and growth : new channels and policy implications," Policy Research Working Paper Series 4064, The World Bank.
    7. Jörg Bibow, 2013. "Lost at Sea: The Euro Needs a Euro Treasury," IMK Studies 35-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    8. Dreger, Christian & Reimers, Hans-Eggert, 2014. "On the relationship between public and private investment in the euro area," Discussion Papers 344, European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics.
    9. Francisco de Castro Fernández & José Manuel González Mínguez, 2008. "The composition of public finances and long-term growth: a macroeconomic approach," Occasional Papers 0809, Banco de España.
    10. Florian Bitsch & Axel Buchner & Christoph Kaserer, 2010. "Risk, return and cash flow characteristics of infrastructure fund investments," EIB Papers 4/2010, European Investment Bank, Economics Department.
    11. Marianne Fay & Atsushi Iimi & Baptiste Perrissin-Fabert, 2010. "Financing greener and climate-resilient infrastructure in developing countries - challenges and opportunities," EIB Papers 7/2010, European Investment Bank, Economics Department.
    12. Eric Peree & Timo Valila, 2005. "Fiscal Rules And Public Investment," Economic and Financial Reports 2005/2, European Investment Bank, Economics Department.
    13. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2010. "The economics of infrastructure finance: Public-private partnerships versus public provision," Documentos de Trabajo 276, Centro de Economía Aplicada, Universidad de Chile.
    14. Jef Vuchelen & Stijn Caekelbergh, 2010. "Explaining public investment in Western Europe," Applied Economics, Taylor & Francis Journals, vol. 42(14), pages 1783-1796.
    15. Philipp Weber & Laura A. Zell & Lars P. Feld & Christoph A. Schaltegger, 2024. "Functionality of Fiscal Rules in a Low Interest Rate Environment – New Empirical Results for Swiss Cantons," CESifo Working Paper Series 11351, CESifo.
    16. Castro, Vitor, 2011. "The impact of the European Union fiscal rules on economic growth," Journal of Macroeconomics, Elsevier, vol. 33(2), pages 313-326, June.
    17. repec:agr:journl:v:4(605):y:2015:i:4(605):p:189-198 is not listed on IDEAS
    18. Straub, Roland & Tchakarov, Ivan, 2007. "Assessing the impact of a change in the composition of public spending: a DSGE approach," Working Paper Series 795, European Central Bank.
    19. Walid BENAYED & Foued Badr GABSI & Samia OMRANE BELGUITH, 2015. "Threshold Effect of Public Debt on Domestic Investment: Evidence from Selected African Countries," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(4(605), W), pages 189-198, Winter.
    20. James Stewart, 2010. "The UK National Infrastructure Plan 2010," EIB Papers 6/2010, European Investment Bank, Economics Department.
    21. Cezara Vinturis, 2023. "How do fiscal rules shape governments' spending behavior?," Economic Inquiry, Western Economic Association International, vol. 61(2), pages 322-341, April.
    22. Dieter Helm, 2010. "Infrastructure and infrastructure finance: The role of the government and the private sector in the current world," EIB Papers 5/2010, European Investment Bank, Economics Department.
    23. Dreger, Christian & Reimers, Hans-Eggert, 2016. "Does public investment stimulate private investment? Evidence for the euro area," Economic Modelling, Elsevier, vol. 58(C), pages 154-158.
    24. Georg Inderst, 2010. "Infrastructure as an asset class," EIB Papers 3/2010, European Investment Bank, Economics Department.

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    More about this item

    Keywords

    Public investment; Public capital stocks; Budgetary policy;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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