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Public investment in Europe: Evolution and determinants

Public investment in Europe: Evolution and determinants. Eric Perée Head, Economic and Financial Studies, EIB Strengthening public investment and managing fiscal risks from PPPs, Budapest, 7-8 March, 2007. Contents. Public investment: What is it (not)?

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Public investment in Europe: Evolution and determinants

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  1. Public investment in Europe:Evolution and determinants Eric Perée Head, Economic and Financial Studies, EIB Strengthening public investment and managing fiscal risks from PPPs, Budapest, 7-8 March, 2007

  2. Contents • Public investment: What is it (not)? • Public investment: trends and composition • Determinants of public investment • Conclusions

  3. Public investment: What is it (not)? • IT IS: Investment spending financed directly from the budget of the federal or subnational government. • IT IS NOT: Investment spending by enterprises — even if they are state-owned.

  4. Contents • Public investment: What is it (not)? • Public investment: trends and composition • Determinants of public investment • EMU, PPPs • Conclusions

  5. Public investment: downtrend in “non-cohesion” EU-15 Public investment in % of GDP (GDP weighted averages) Source: OECD, own calculations

  6. Public investment: uptrend in Cohesion and EU-8 Public investment in % of GDP (GDP weighted averages) Source: OECD, own calculations

  7. Public capital stocks continue to grow • “Non-cohesion” EU-15 public investment flows trended down, but no clear sign of fall in public investment in cohesion countries. • But EU-15 public capital stocks have: • Stayed stable in relation to GDP • Grown in real terms • Optimal size of public capital stocks?

  8. Half of public investment infrastructure,with big cross-country differences Investment by general government (in % of GDP, average 2000-05) Source: New Cronos, own calculations and definitions

  9. Half of public investment infrastructure,with big cross-country differences Investment by general government (in % of GDP, average 2000-05) Source: New Cronos, own calculations and definitions

  10. Contents • Public investment: What is it (not)? • Public investment: trends and composition • Determinants of public investment • Conclusions

  11. Net worth turned negative Public capital less public debt as a share of GDP, % Source: Kamps (2004), OECD

  12. EU-15 public investmentnot affected by EMU • EMU fiscal rules often blamed for downtrend in EU-15 public investment • Empirical evidence suggests that EMU, per se, has not affected public investment in EU-15, and certainly not in Cohesion countries • Instead, drawn-out fiscal problems and consolidation, unrelated to EMU, explain the downtrend in EU-15

  13. PPPs geographically concentrated Signed value of PPP contracts, 1995-2003 (total €108 billion) Source: ProjectWare, HMT

  14. PPPs not turned the trend even in UK Public investment as a share of GDP, % Public investment without PPPs Public investment plus PPPs Source: OECD, HMT

  15. PPPs significant in UK, Portugal Signed PPP contracts (stock) and public investment (flow), in % of GDP (average 1995-2003) Source: ProjectWare, HMT, OECD

  16. Conclusions • Public investment is investment by the government. It is not investment by (public) enterprises. • Public investment, as a share of GDP, has declined in non-cohesion countries only. Even there, public capital stocks have not shrunk. • The decline is due to drawn-out episodes of fiscal consolidation, unrelated to EMU’s fiscal rules per se. • PPPs have been geographically concentrated and significant in size only in the UK and Portugal.

  17. Infrastructure accounts forhalf of public investment in % of total investment by general government (average 2000-05) Redistribution Public goods HC infra Infra Source: New Cronos, own calculations and definitions

  18. Infrastructure accounts forhalf of public investment in % of total investment by general government (average 2000-05) Redistribution Public goods HC infra Infra Source: New Cronos, own calculations and definitions

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