Economic growth, public, and private investment returns in 17 OECD economies
We study the macroeconomic effects of public and private investment in 17 OECD economies through a VAR analysis with annual data from 1960 to 2014. From impulse response functions we find that public investment had a positive growth effect in most countries, and a contractionary effect in Finland, UK, Sweden, Japan, and Canada. Public investment led to private investment crowding o ut in Belgium, Ireland, Finland, Canada, Sweden, the UK and crowding-in effects in the rest of the countries. Private investment has a positive growth effect in all countries; crowds-out (crowds-in) public investment in Belgium and Sweden (in the rest of the countries). The partial rates of return of public and private investment are mostly positive. Our results are robust to the ordering of private and public investment in the VAR.
KeywordsFiscal policy Public investment Private investment Crowding-in Macroeconomic rates of return Impulse response functions VAR
JEL ClassificationC32 E22 E62
We thank an anonymous referee, the editor, and Narcissa Balta and participants at the DG ECFIN Workshop on “Fiscal policy after the crisis”, January 2016, Brussels, at the Portuguese Economic Journal Conference, July 2016, Coimbra, and at the 19th Infer Annual Conference, Bordeaux, June 2017, for useful comments and suggestions. The opinions expressed herein are those of the authors and do not necessarily reflect those of their employers.
UECE is supported by FCT (Fundação para a Ciência e a Tecnologia, Portugal).
- Abiad A, Furceri D, Topalova P (2015) The macroeconomic effects of public investment: evidence from advanced economies. IMF WP/15/95Google Scholar
- Cavalcanti C, Merrero G, Le T (2014) Measuring the impact of debt-financed public investment. World Bank, Policy Research Working Paper No. 6766Google Scholar
- Creel J, Hubert P, Saraceno F (2015) An empirical analysis of the link between public and private investment in four OECD countries. 17th Banca d’Italia Workshop on Public Finance “Beyond the Austerity Dispute: New Priorities for Fiscal Policy”, Perugia, S.A.DI.BA., 9–11 April 2015Google Scholar
- EC (2015) Making the best use of the flexibility within the existing rules of the Stability and Growth Pact. COM(2015) 12 final, Strasbourg, 13.1.2015, COM(2015) 12 finalGoogle Scholar
- Funashima Y, Gakuin T (2017) Spatial crowding-out and crowding-in effects of government spending on the private sector in Japan. Faculty of Economics, University, TGU-ECON Discussion Paper Series #2017-3Google Scholar
- IMF (2014) Is it time for an infrastructure push? The macroeconomic effects of public investment. IMF World Economic Outlook, OctoberGoogle Scholar
- Le Moigne M, Saraceno F, Villemot S (2016) Probably too little, certainly too late. An assessment of the Juncker investment plan. OFCE WP 2016–10Google Scholar
- Mahmoudzadeh M, Sadeghi S, Sadeghi S (2013) Fiscal spending and crowding out effect: a comparison between developed and developing countries. Inst Econ 5(1):31–40Google Scholar
- Pereira A, Pinho M (2011) Public investment, economic performance and budgetary consolidation: VAR evidence for the first 12 Euro countries. J Econ Dev 36(1):1–20Google Scholar
- Pina A, St. Aubyn M (2006) How should we measure the return on public investment in a VAR? Econ Bull 8(5):1–4Google Scholar
- TEU (2012) Consolidate version of the Treaty on the functioning of the European Union. Off J Eur Union 26.10.2012Google Scholar
- Turrini A (2004) Public investment and the EU fiscal framework. European economy. European commission economic papers, n°202, MayGoogle Scholar