To What Extent Does Public Investment Impact Long–Run Output?

Monica George Micail ()

National Institute UK Economic Outlook, 2025, issue 17, 95-102

Abstract: There is a need to increase public investment spending in the United Kingdom to boost economic growth and productivity. In this topical feature, we use NiGEM to estimate the effects of public investment on supply (long–run trend output). We apply several scenarios using different assumptions regarding expectations, fiscal policy and monetary policy. We find that a permanent one per cent rise in public investment as a share of GDP leads to a 2.2 – 2.9 per cent increase in long run output, using a 35–year horizon. We also measure the impact of a similar sized shock that lasts for only one year and find that it leads to a 0.7–0.8 per cent increase in GDP within a year, but this impact quickly fades if the rise in investment is not sustained. The current UK fiscal framework constrains public investment, as the positive impacts from investment on output often take longer to materialise compared to the short-term debt-reduction targets set by the fiscal rules.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://niesr.ac.uk/publications/what-extent-does- ... look-topical-feature

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nsr:niesra:i:17y:2025p:95-102

Access Statistics for this article

More articles in National Institute UK Economic Outlook from National Institute of Economic and Social Research 2 Dean Trench Street Smith Square London SW1P 3HE. Contact information at EDIRC.
Bibliographic data for series maintained by Library & Information Manager ().