Public Investment in Europe: Evolution and Determinants in perspective

Aaron Nikolai Mehrotra () and Timo Välilä

Fiscal Studies, 2006, vol. 27, issue 4, pages 443-471

Abstract: We describe the evolution of public investment and public capital stocks in Europe over the past three decades. Against this background, we analyse the macroeconomic determinants of public investment, with a special focus on its long-term trend. We find that public investment has been determined by national income, the stance of budgetary policies and fiscal sustainability considerations. Neither the cost of financing nor the fiscal rules embodied in EMU have had a systemic impact on public investment. The significant downtrend that characterises the evolution of public investment in non-cohesion countries is chiefly determined by drawn-out episodes of fiscal consolidation, unrelated to EMU. Copyright Institute for Fiscal Studies, 2006.

Date: 2006
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