Public Investment and Budgetary Consolidation in Portugal

Alfredo Marvao Pereira () and Fatima Pinho ()
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Fatima Pinho: Instituto Superior de Contabilidade e Administração

No 41, Working Papers from Department of Economics, College of William and Mary

Abstract: In this paper we find that public investment in durable goods has a positive effect on long-term economic performance in Portugal. We also find that these positive effects are not strong enough for public investment to pay for itself in the form of future tax revenues. Therefore, cuts in public investment in durable goods, although costly in terms of long-term economic performance seem to be an effective way of alleviating pressure on the public budget. It is important to note, however, that this general result contrasts sharply with the evidence found in this paper for public investment in equipment, a small component of public investment in durable goods, as well as with evidence elsewhere for public investment in transportation infrastructures. For these, the effects on output are strong enough for public investment to pay for itself. Therefore, cuts in these two types of public investment, would have negative long-term economic effects as well as negative long-term budgetary effects. Clearly, not all public investment is created equal.

Keywords: public investment; economic growth; budgetary consolidation; Portugal (search for similar items in EconPapers)
JEL-codes: C32 E62 H54 O52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-pbe
Date: 2006-08-30
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