The Effect of Public Investment in Europe: A Model-Based Assessment

47 Pages Posted: 21 Feb 2017

See all articles by Jasper de Jong

Jasper de Jong

De Nederlandsche Bank

M. Ferdinandusse

European Central Bank (ECB)

Josip Funda

Independent

Igor Vetlov

Bank of Lithuania

Date Written: February 21, 2017

Abstract

We consider the effect of an increase in public investments on output in Europe against the background of a sharp drop of public investments in a number of EU countries during the crisis and subsequent policy discussions on the need to stimulate public investments. We start with a brief overview of recent developments in public investments, including some methodological issues, and provide a literature overview of the effect of public investments on growth. On the basis of updated estimates of the public capital stock, we estimate the output response to a public capital impulse, using VAR models. In addition, using a structural model, we investigate the sensitivity of the macroeconomic impact of an increase in public investments to alternative assumptions about economic structures and policy implementations.

Keywords: fiscal policy, public investment, euro area, general equilibrium modelling

JEL Classification: E32, E62, C30

Suggested Citation

de Jong, Jasper and Ferdinandusse, M. and Funda, Josip and Vetlov, Igor, The Effect of Public Investment in Europe: A Model-Based Assessment (February 21, 2017). ECB Working Paper No. 2021, Available at SSRN: https://ssrn.com/abstract=2921108

Jasper de Jong (Contact Author)

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

M. Ferdinandusse

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Josip Funda

Independent ( email )

Igor Vetlov

Bank of Lithuania ( email )

Totoriu 4
Vilnius, LT-01121
Lithuania

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