Is There a Lack of Public Capital in the European Union?

Abstract

This paper investigates whether there is a lack of public capital in European Union countries. The analysis builds on a new database providing internationally comparable capital stock estimates for 22 OECD countries, among these 14 EU countries, for the period 1960-2001. A simple model of endogenous growth is used in order to highlight the inherently nonlinear relationship between public capital and economic growth and in order to derive a measure of the growth-maximizing public capital stock. Against this background the empirical analysis provides estimates of the growth-maximizing level of public capital for EU countries. The empirical results suggest that there currently is no lack of public capital in most 'old' EU countries.

Keywords: Public capital, economic growth, optimal fiscal policy, OECD countries

JEL Classification: E62, H54