Irish Government Investment, Financing and the Public Capital Stock

Rónán Hickey, Matija Lozej and Diarmaid Smyth
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Rónán 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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Persistent link: https://EconPapers.repec.org/RePEc:cbi:qtbart:y:2018:m:07:p:64-76

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