An EU Fund to Incentivise Public Investments with Positive Externalities

Roel Beetsma

The Economists' Voice, 2024, vol. 21, issue 1, 163-174

Abstract: This contribution, based on the proposals by Bakker, Beetsma, and Buti (2024a. “The Case for a European Public-Goods Fund.” Project Syndicate, 4 March. https://www.project-syndicate.org/commentary/public-goods-fund-could-finance-green-transition-and-ensure-fiscal-responsibility-by-age-bakker-et-al-2024-03, 2024b. “Two Birds with One Stone: Investing in European Public Goods while Maintaining Fiscal Discipline at Home.” Intereconomics 59 (2): 1–6), discusses an EU fund to finance investments with positive cross-border spill-overs, such as large infrastructures, that are too expensive for individual countries to finance, or of which the benefits are insufficiently internalised by individual investing countries. Each country receives a given part (“envelope”) of the fund. The envelope size and the contribution as well as the eventual debt repayment burden could be proportional to the size of the economy, thereby minimising cross-border redistribution. Access to the fund’s resources is conditional on adherence to the EU’s new fiscal rulebook. If a country fails to make full use of its envelope, the remaining resources are re-allocated over the other envelopes. Hence, the fund provides an incentive for countries to simultaneously undertake investments that benefit groups of countries or the EU at large, and to maintain fiscal discipline. We discuss the size of the fund, how it fits within the EU current instrument set, its governance, its financing and its potential political appeal.

Keywords: stability and growth pact; cross-border spill-overs; conditionality; investments (search for similar items in EconPapers)
JEL-codes: E2 E6 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1515/ev-2024-0016

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