The Effect of Public Investment in Europe: A Model-Based Assessment

Abstract

This paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB.

Business investment in EU countries

“…82 Note that this is closer to the upper range of elasticities considered by Leeper et al (2010) or Clancy et al (2016), which implies that the estimates there -which are qualitatively consistent with the estimates reported hereare on the conservative side. In the single-country versus broader-based expansion exercise, the elasticity of output to public capital is set at 0.1, in line with other recent works (Elekdag and Muir, 2014;de Jong et al, 2017b) and again with the empirical evidence in Bom and Ligthart (2014). The evidence collected by de Jong et al (2017a) indicates that the effects of public capital shocks on output growth are very heterogeneous across the OECD countries.…”

“…The evidence collected by de Jong et al (2017a) indicates that the effects of public capital shocks on output growth are very heterogeneous across the OECD countries. In a study focused on Europe, de Jong et al (2017b) provide VAR-based estimates of the impacts on output of an increase in the public capital stock in 12 EU countries and find that it enhances productivity in most of these economies. They do not find conclusive evidence that these effects on output are currently larger than before the financial and sovereign debt crises, even though public capital declined substantially in a number of countries.…”

Investments and maintenance spending for public facilities: what do we know and what do we want to know

“…Empirical studies (see Bom and Ligthart, 2014) show that public capital stimulate economic activity, but that the results depend on a range of variables and that investments must be considered in light of these. Furthermore, De Jong et al . (2017) point to analyses with different effects in the short and long run.…”

“…Despite low borrowing costs, public investments in EU countries have declined in the years following the financial crisis (De Jong et al ., 2017). At the same time, low economic growth has been used as an argument for an increased need for such investments.…”

Italy’s National Recovery and Resilient Plan: Will it Narrow the North-South Productivity Gap?

“…de Jong et al (2017) present a meta-analysis according to which from 68 papers on the topic the average output elasticity of public capital is on average 0.106.…”