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Is Public Capital Productive in Europe?

  • Jérôme Creel

    (OFCE)

  • Gwénaëlle Poilon

This paper addresses the issue of whether and by how much public investment or public capital can enhance economic performance. In comparison with the literature on the subject, we apply many different methodologies to answer these questions. A VAR model (for France, Italy, Germany, the UK and the USA), a panel composed of 6 European countries (Austria, Belgium, France, Germany, Italy and the Netherlands) and a regional panel (French regions) are therefore estimated. Public investment is shown to be a significant determinant of output; this is also true for public capital but to a lesser extent than public investment with a VAR methodology. The size of the estimated coefficient is also more realistic than those obtained in the literature. This empirical result confirms that the focus of some economists on safeguarding the level of public investment is not misplaced. The debate on the introduction of a “golden rule of public finance” in EMU is legitimate.

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File URL: http://spire.sciencespo.fr/hdl:/2441/963/resources/wp2006-10.pdf
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Paper provided by Sciences Po in its series Sciences Po publications with number n°2006-10.

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Date of creation: May 2006
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Handle: RePEc:spo:wpmain:info:hdl:2441/963
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  1. Gilbert Colletaz & Christophe Hurlin, 2006. "Threshold Effects of the Public Capital Productivity : An International Panel Smooth Transition Approach," Working Papers halshs-00008056, HAL.
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  7. Philip Arestis & Kevin McCauley & Malcolm Sawyer, 2000. "An Alternative Stability Pact for the European Union," Economics Working Paper Archive wp_296, Levy Economics Institute.
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  12. Jerome Creel, 2003. "Ranking Fiscal Policy Rules: the Golden Rule of Public Finance vs. the Stability and Growth Pact," Documents de Travail de l'OFCE 2003-04, Observatoire Francais des Conjonctures Economiques (OFCE).
  13. Michael Bleaney & Norman Gemmell & Richard Kneller, 2001. "Testing the endogenous growth model: public expenditure, taxation, and growth over the long run," Canadian Journal of Economics, Canadian Economics Association, vol. 34(1), pages 36-57, February.
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  16. David Aschauer, 1988. "Is public expenditure productive?," Staff Memoranda 88-7, Federal Reserve Bank of Chicago.
  17. Coricelli, Fabrizio & Ercolani, Valerio, 2002. "Cyclical and Structural Deficits on the Road to Accession: Fiscal Rules for an Enlarged European Union," CEPR Discussion Papers 3672, C.E.P.R. Discussion Papers.
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