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Secular Decline in Public Investment: are National Fiscal Rules to Blame?

Olegs Tkacevs ()

No 2020/04, Working Papers from Latvijas Banka

Abstract: This study investigates the impact of national fiscal rules on public investment policy. Using data of 35 OECD countries for the period 1995–2015, the paper provides evidence of a negative effect of expenditure rules on the level and share of government investment expenditure in total outlays, particularly in economic affairs. The effect of budget balance rules is less certain and seems to stem from those rules that do not explicitly exclude investment from the assessment. The coefficient estimates however imply a relatively low magnitude of the negative effect of fiscal rules. Overall, our paper suggests that, while loosening fiscal rules will not solve the problem of underinvestment, properly designed rules can help to protect public capital stock to some extent only.

Keywords: fiscal rules; government expenditure; public investment; panel analysis (search for similar items in EconPapers)
JEL-codes: E62 H50 C23 (search for similar items in EconPapers)
Date: 2020-10-06
New Economics Papers: this item is included in nep-mac and nep-tra
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