Irish Government Investment, Financing and the Public Capital Stock

R n n Hickey, Matija Lozej and Diarmaid Smyth
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R n n Hickey: Central Bank of Ireland
Diarmaid Smyth: Central Bank of Ireland

Quarterly Bulletin Articles, 2018, 64-76

Abstract: Expenditure reductions played a key role in the Irish fiscal consolidation process over the period 2008 to 2013, with declines in public investment spending particularly notable. This appears to have had a marked impact on the public capital stock, which we estimate has grown only modestly in recent years. At a global level, concerns have been raised about the consequences of low public investment for long-term potential growth. With this in mind, plans to increase government capital spending in Ireland should lead to a significant increase in the public capital stock. An important consideration is how this investment is financed. Using the Central Bank s Dynamic General Equilibrium model, we show that adopting budget neutral investment spending can generate the long-term benefits of a higher public capital stock while at the same time limiting the risk of overheating dynamics and negative consequences for the public finances.

Date: 2018-07
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