Stimulating avenues: EIB loans and returns to Public Investment

Morteza Ghomi and Evi Pappa
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Morteza Ghomi: BANCO DE ESPAÑA
Evi Pappa: UNIVERSIDAD CARLOS III DE MADRID AND CEPR

No 2610, Working Papers from Banco de España

Abstract: We study the macroeconomic effects of persistent public investment shocks using a local-projection instrumental-variables framework and European data. For identification, we exploit European Investment Bank loans for public infrastructure projects and address potential endogeneity in loan approval with an inverse-probability-weighted regression adjustment estimator. Public investment shocks raise employment and output in the medium term, without crowding out private investment or consumption, or generating inflation or an additional debt burden. The cumulative output multiplier reaches 3.38 after five years and is significant and larger when credit conditions are favorable. We report significant positive spillover effects from public infrastructure spending on both output and employment.

Keywords: local projections; instrumental variables; multipliers; government investment; spillovers (search for similar items in EconPapers)
JEL-codes: E62 H41 H54 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2026-03
New Economics Papers: this item is included in nep-fdg and nep-ppm
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:2610

DOI: 10.53479/42645

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