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

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Is there a lack of public capital in the European Union? Terms of use: Documents in IntroductionThe decline in government investment in many OECD countries has alerted policy makers and researchers alike. In the Broad Economic Policy Guidelines, the European Commission (2001) recommended the member countries of the European Union to draw "an appropriate balance and sequencing […] between running down public debt, cutting taxes and financing public investment in key areas. To this end Member States should […] redirect public expenditures towards physical and human capital accumulation." Modigliani et al. (1998) and Blanchard and Giavazzi (2003), in turn, proposed to exclude net public investment from the measure of the budget deficit underlying the Stability and Growth Pact in order to prevent future fiscal consolidation in the euro area from negatively affecting public capital spending. Finally, at the end of the 1990s, the government in the United Kingdom launched a large multi-annual spending programme aimed at reversing the falling trend in the ratio of public capital spending to GDP, which had fallen to a very low level by 1997 (HM Treasury 2002).Figure 1 displays the ratios of government investment and government capital stock to GDP for a group of 22 OECD countries and for a group of 14 European Union member states. 1 The left-hand panel of the figure shows that in both groups of countries government investment in relation to GDP declined strongly in the 1970s and remained roughly stable in the 1980s. In the 1990s, government investment in relation to GDP again fell in the EU, probably reflecting in part fiscal consolidation efforts in the run-up to Economic and Monetary Union, while in other OECD countries-especially in Japan-government investment grew. Based on the evolution of public investment, the right-hand panel of Figure 1 depicts the evolution of public capital stocks.While government investment in relation to GDP has fallen strongly in OECD countries on average over the past three decades, the ratio of government capital to GDP has decreased only slightly. Had the high investment rates of the early 1970s been sustained, government capital to GDP ratios would even have increased. Whether the recent decline in the ratio of government capital to GDP is a reason for concern depends on the economic benefits and costs of additional government capital and is, thus, an empirical question.The calls for an expansion of public capital spending, esp...

Optimal Public Investment, Growth, and Consumption: Evidence From African Countries

“…In addition, they are much smaller than the values, which were reported, by earlier works, for other areas. For instance, Aschauer's (2000a) estimate of the growth maximizing level of public capital for the US is about 30 percent; Miller and Tsoukis's (2001) for a wide range of low and middle income countries is 18 percent; Kamps's (2005) for European and OECD countries is 20 percent.…”

“…5 In contrast, earlier studies that estimate the elasticity of output of public capital in nonlinear models usually apply simple calibration (e.g., cross section of countries. 4 For example, Aschauer (2000a) and Kamps (2005) examined the optimality of public capital in the United States and European countries, respectively, while Miller and Tsoukis (2001) was on a set of low and middle-income countries.…”

“…Aschauer, 2000a, Miller andTsoukis, 2001) or nonlinear least squares methods (e.g., Kamps, 2005), or that simply use cross-country analysis, which runs the risk of taking into account only the short-term e¤ects (see Glomm and Ravikumar 1997).…”

Economic growth: onwards and upwards?

“…Investment in public capital has positive effects on real GDP, where an output elasticity of about 0.2 is a reasonable assumption, and also 'crowds in' private capital in the medium term (Kamps, 2005a). This estimate underpins a calculation that to maintain the level of public capital to GDP at a growth-maximizing level, public investment of about 2.7 per cent of GDP per year given a reasonable estimate of potential growth in the UK (Kamps, 2005b).…”

Public Capital and Economic Growth: Key Issues for Europe

“…He finds that for most of the United States the actual levels of public capital were below the growth maximizing level. Kamps (2005) applies the methodology of Aschauer (2000) in the European context to assess the gap between actual and optimal public capital stocks. His results, however, suggest that there is currently no lack of public capital in most of the 'old' EU member states.…”