Public capital in the 21st century: as productive as ever?

The global financial crisis and the euro area sovereign debt crisis that followed induced a rapid deterioration in the fiscal positions of countries across the globe. In the ensuing fiscal adjustment process, public investments were severely reduced in many countries. How harmful is this for growth...

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Bibliographic Details
Published inApplied economics Vol. 50; no. 51; pp. 5543 - 5560
Main Authors De Jong, J. F. M., Ferdinandusse, M., Funda, J.
Format Journal Article
LanguageEnglish
Published London Routledge 02.11.2018
Taylor & Francis Ltd
Subjects
21st century
Capital
Capital stock
Deterioration
Economic analysis
Economic crisis
Economic growth
Economic models
Economic theory
Fiscal policy
global financial crisis
Investments
macroeconomics
Public capital stock
Sovereign debt
Time series
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Summary:The global financial crisis and the euro area sovereign debt crisis that followed induced a rapid deterioration in the fiscal positions of countries across the globe. In the ensuing fiscal adjustment process, public investments were severely reduced in many countries. How harmful is this for growth perspectives? Our main objective is to find out whether the importance of public capital for long run output growth has changed in recent years. To this end, we expand time series on public capital stocks for 20 OECD countries and estimate country-specific recursive vector autoregressive (VAR) models. Results show that the effect of public capital shocks on economic growth has not increased in general, although results differ widely between countries. This suggests that the current level of public investments generally does not pose an immediate threat to potential output. Of course, this could change if low investment levels are sustained for a long time.
ISSN:0003-6846
1466-4283
DOI:10.1080/00036846.2018.1487002