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Irish Government Investment, Financing and the Public Capital Stock

Author

Listed:
  • Hickey, Rónán

    (Central Bank of Ireland)

  • Lozej, Matija

    (Central Bank of Ireland)

  • Smyth, Diarmaid

    (Central Bank of Ireland)

Abstract

Expenditure reductions played a key role in the Irish fiscal consolidation process over the period 2008 to 2013, with declines in public investment spending particularly notable. This appears to have had a marked impact on the public capital stock, which we estimate has grown only modestly in recent years. At a global level, concerns have been raised about the consequences of low public investment for long-term potential growth. With this in mind, plans to increase government capital spending in Ireland should lead to a significant increase in the public capital stock. An important consideration is how this investment is financed. Using the Central Bank’s Dynamic General Equilibrium model, we show that adopting budget neutral investment spending can generate the long-term benefits of a higher public capital stock while at the same time limiting the risk of overheating dynamics and negative consequences for the public finances.

Suggested Citation

  • Hickey, Rónán & Lozej, Matija & Smyth, Diarmaid, 2018. "Irish Government Investment, Financing and the Public Capital Stock," Quarterly Bulletin Articles, Central Bank of Ireland, pages 64-76, July.
    • Handle: RePEc:cbi:qtbart:y:2018:m:07:p:64-76
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    File URL: https://www.centralbank.ie/docs/default-source/publications/quarterly-bulletins/quarterly-bulletin-signed-articles/irish-government-investment-financing-and-the-public-capital-stock-(hickey-lozej-and-smyth).pdf?sfvrsn=2
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    Cited by:

    1. Noel Rapa & Abigail Marie Rapa, "undated". "The macroeconomic effects of closing the public sector capital gap in Malta," CBM Policy Papers PP/07/2019, Central Bank of Malta.
    2. Varthalitis, Petros, 2019. "Fiscal multipliers in Ireland using FIR-GEM model," Papers WP636, Economic and Social Research Institute (ESRI).

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