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Factor mobility, government debt and the decline in public investment

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Abstract

This paper aims at explaining the declining level of public investment in OECD countries. The theoretical framework hints to the relevance of a number of demand and supply factors—ranging from the yield of public investment to institutions like the EU deficit limits. The econometric results indicate that the decline is due to three developments: first to the increase in the public capital stock; second to the pile-up of public debt which has restricted the ability to finance new investment; and third to the increasing mobility of factors adding to the financing difficulties. In contrast to that neither the privatisation process nor EU deficit restrictions of the Maastricht Treaty have a robustly significant impact.

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Notes

  1. Included are the following countries: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Italy, Japan, Luxembourg, Netherlands, Spain, Sweden, United Kingdom, United States.

  2. Schulze and Ursprung 1999 survey the empirical literature on tax competition. The evidence for some downward competition of corporate taxes is strong in studies based on (effective) tax rates. Revenue based studies come to contradicting remarks.

  3. See Schipke (2001) for the driving forces behind the privatisation tendencies.

  4. Included are: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Iceland, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, United Kingdom and USA

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Acknowledgements

The author acknowledges financial support by the German Science Foundation (DFG) within the research program “Governance in the European Union”. He thanks two anonymous referees for helpful comments.

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  1. ZEW, P.O. Box 10 34 43, 68034, Mannheim, Germany

    Friedrich Heinemann

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  1. Friedrich Heinemann
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Correspondence to Friedrich Heinemann.

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Table 1 Variable definitions and sources
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Heinemann, F. Factor mobility, government debt and the decline in public investment. IEEP 3, 11–26 (2006). https://doi.org/10.1007/s10368-005-0043-z

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