Quantifying Spillovers of Next Generation EU Investment

Philipp Pfeiffer, Janos Varga and Jan in 't Veld

No 144, European Economy - Discussion Papers from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: Next Generation EU (NGEU) is an unprecedented tool that provides significant financial support for reforms and investment, resulting in a coordinated fiscal expansion across the EU in response to the COVID-19 pandemic. Thus, fiscal spillovers are relevant for the assessment of its overall macroeconomic effects. We quantify the effects of the additional investment expenditure for each Member State by extending a standard macro model with a rich trade structure. Our model suggests that the EU-wide GDP effects are around one third larger when explicitly accounting for the spillover effects from individual country measures. A simple aggregation of the national effects of individual investment plans would thus substantially underestimate the growth effects of NGEU. For small open economies with smaller NGEU allocations, spillover effects account for the bulk of the GDP impact. We also quantify the role of key transmission channels, such as the zero lower bound, productivity effects and different assumptions on the disbursement speed. However, the paper does not quantify the impact of structural reforms, which can further enhance the growth impact of NGEU.

JEL-codes: E61 E62 F17 F41 F42 (search for similar items in EconPapers)
Pages: 68 pages
Date: 2021-07
New Economics Papers: this item is included in nep-eec, nep-isf and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:euf:dispap:144

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