Is There a Lack of Public Capital in the European Union?
EIB Working Paper
41 Pages Posted: 6 Jul 2005
Date Written: April 2005
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
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