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A Primer on Public Investment in Europe, Old and New

Listed author(s):
  • Peree, Eric


    (European Investment Bank, Economic and Financial Studies)

  • Valila, Timo


    (European Investment Bank, Economic and Financial Studies)

We take stock of what is known about public investment in the member states of the European Union, old and new alike. The interesting features about the long-term evolution of public investment have been its downtrend in old EU member states, bar the cohesion countries, and its volatility in new member states. The downtrend in the old member states cannot be traced back to EMU's fiscal rules per se, nor can it be explained by the emergence of innovative financing mechanisms for infrastructure, such as public-private partnerships. Rather, it is the result of drawn-out episodes of fiscal adjustment and consolidation, necessitated by long periods of unsustainable fiscal policies and deterioration of governments' net worth. We also examine the composition of public investment and conclude that only half of it comprises infrastructure investment in EU-15 and in EU-8, with a slightly higher share in the cohesion countries. The share of infrastructure investment, especially in traditional transport and other communications infrastructure, is in EU-8 somewhat higher than in old EU member states, but below the level in the cohesion countries. All this suggests for the new member states that the on-going build-up of their public capital stocks, especially infrastructure capital, requires the safeguarding of sufficient fiscal space to accommodate adequate public investment.

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Paper provided by European Investment Bank, Economics Department in its series Economic and Financial Reports with number 2007/1.

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Length: 20 pages
Date of creation: 15 Oct 2007
Handle: RePEc:ris:eibefr:2007_001
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  1. repec:pal:imfstp:v:53:y:2006:i:1:p:120-150 is not listed on IDEAS
  2. Aaron Mehrotra & Timo Välilä, 2006. "Public Investment in Europe: Evolution and Determinants in perspective," Fiscal Studies, Institute for Fiscal Studies, vol. 27(4), pages 443-471, December.
  3. Blanchard, Olivier J & Giavazzi, Francesco, 2004. "Improving the SGP Through a Proper Accounting of Public Investment," CEPR Discussion Papers 4220, C.E.P.R. Discussion Papers.
  4. Christophe Kamps, 2006. "New Estimates of Government Net Capital Stocks for 22 OECD Countries, 1960-2001," IMF Staff Papers, Palgrave Macmillan, vol. 53(1), pages 1-6.
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