Stimulating Avenues: EIB Loans and Returns to Public Investment

Morteza Ghomi and Evi Pappa

No 21157, CEPR Discussion Papers from Centre for Economic Policy Research

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 and consumption, or generating inflation and 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 spending in public infrastructure in both output and employment.

JEL-codes: E62 H41 H54 (search for similar items in EconPapers)
Date: 2026-02
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