A Primer on Public Investment in Europe, Old and New

Eric Peree () and Timo Valila
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Eric Peree: European Investment Bank, Economic and Financial Studies

No 2007/1, Economic and Financial Reports from European Investment Bank, Economics Department

Abstract: We take stock of what is known about public investment in the member states of the European Union, old and new alike. The interesting features about the long-term evolution of public investment have been its downtrend in old EU member states, bar the cohesion countries, and its volatility in new member states. The downtrend in the old member states cannot be traced back to EMU's fiscal rules per se, nor can it be explained by the emergence of innovative financing mechanisms for infrastructure, such as public-private partnerships. Rather, it is the result of drawn-out episodes of fiscal adjustment and consolidation, necessitated by long periods of unsustainable fiscal policies and deterioration of governments' net worth. We also examine the composition of public investment and conclude that only half of it comprises infrastructure investment in EU-15 and in EU-8, with a slightly higher share in the cohesion countries. The share of infrastructure investment, especially in traditional transport and other communications infrastructure, is in EU-8 somewhat higher than in old EU member states, but below the level in the cohesion countries. All this suggests for the new member states that the on-going build-up of their public capital stocks, especially infrastructure capital, requires the safeguarding of sufficient fiscal space to accommodate adequate public investment.

Keywords: Public investment; European Union; Fiscal rules; public-private partnership (search for similar items in EconPapers)
JEL-codes: E62 H54 L33 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2007-10-15
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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