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Composition Of Public Investment And Fiscal Federalism: Panel Data Evidence From Europe

Author

Listed:
  • Kappeler, Andreas

    () (European Investment Bank, Economic and Financial Studies)

  • Valila, Timo

    () (European Investment Bank, Economic and Financial Studies)

Abstract

We present some stylised facts about the composition of public investment in Europe and analyse its determinants, with a special focus on the role of fiscal decentralisation. The empirical analysis is conducted both for levels of different types of public investment and for their shares in total public investment. The results suggest that fiscal decentralisation boosts economically productive public investment, notably infrastructure, and curbs the relative share of economically less productive public investment, such as recreational facilities. While not readily reconcilable with the traditional theory of fiscal federalism, especially as regards the provision of local public goods, these findings can be interpreted in terms of the literature on fiscal competition, with not only tax rates but also the quality of public expenditure weighing in firms' location decisions.

Suggested Citation

  • Kappeler, Andreas & Valila, Timo, 2007. "Composition Of Public Investment And Fiscal Federalism: Panel Data Evidence From Europe," Economic and Financial Reports 2007/2, European Investment Bank, Economics Department.
    • Handle: RePEc:ris:eibefr:2007_002
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    References listed on IDEAS

    as
    1. Dahlby, Bev & Wilson, Leonard S., 2003. "Vertical fiscal externalities in a federation," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 917-930, May.
    2. Hulten, Charles R. & Schwab, Robert M., 1997. "A fiscal federalism approach to infrastructure policy," Regional Science and Urban Economics, Elsevier, vol. 27(2), pages 139-159, April.
    3. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Public investment; fiscal decentralisation; Europe;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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