IDEAS home Printed from https://ideas.repec.org/a/nbb/ecrart/y2016mseptemberiiip99-113.html
   My bibliography  Save this article

Should government investment be promoted ?

Author

Listed:
  • W. Melyn

    (National Bank of Belgium)

  • R. Schoonackers

    (National Bank of Belgium)

  • P. Stinglhamber

    (National Bank of Belgium)

  • L. Van Meensel

    (National Bank of Belgium)

Abstract

Public investment is currently at a low level in Belgium and in many other European countries. However, public investment has a very positive impact on economic activity and on an economy’s production potential. It is therefore advisable to boost that investment, though of course without impairing the consolidation of public finances necessary to safeguard their sustainability. The article offers an overview of public investment and the initiatives for promoting it. A first section analyses the components of public investment, describes the trend in that investment and compares the situation in Belgium with the European picture. A second section examines the macroeconomic impact of public investment and sets out numerous arguments explaining why that investment needs to be increased. The last section looks at the various possible ways of encouraging an increase in public investment, which is desirable in the current circumstances. The article ends with some conclusions. As regards the statistical treatment of investment under the ESA 2010 methodological framework, the basic rules are clear and it is not desirable to redraft them. As regards the application of the European fiscal rules under the Stability and Growth Pact, serious consideration should be given to revising the way in which public investment is taken into account, with a view to more favourable treatment of that expenditure. This could be done by replacing investment expenditure with the amortisation of public investment when determining the relevant budget balance.

Suggested Citation

  • W. Melyn & R. Schoonackers & P. Stinglhamber & L. Van Meensel, 2016. "Should government investment be promoted ?," Economic Review, National Bank of Belgium, issue ii, pages 99-113, september.
    • Handle: RePEc:nbb:ecrart:y:2016:m:september:i:ii:p:99-113
    as

    Download full text from publisher

    File URL: https://www.nbb.be/en/articles/should-public-investment-be-boosted
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Abiad (ADB), Abdul & Furceri (IMF and University of Palermo), Davide & Topalova (IMF), Petia, 2016. "The macroeconomic effects of public investment: Evidence from advanced economies," Journal of Macroeconomics, Elsevier, vol. 50(C), pages 224-240.
    2. Achim Truger, 2015. "Implementing the golden rule for public investment in Europe," Working Paper Reihe der AK Wien - Materialien zu Wirtschaft und Gesellschaft 138, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik.
    3. Pedro R.D. Bom & Jenny E. Ligthart, 2014. "What Have We Learned From Three Decades Of Research On The Productivity Of Public Capital?," Journal of Economic Surveys, Wiley Blackwell, vol. 28(5), pages 889-916, December.
    4. Gomes, S. & Jacquinot, P. & Pisani, M., 2012. "The EAGLE. A model for policy analysis of macroeconomic interdependence in the euro area," Economic Modelling, Elsevier, vol. 29(5), pages 1686-1714.
    5. Blanchard, Olivier & Giavazzi, Francesco, 2004. "Improving the SGP Through a Proper Accounting of Public Investment," CEPR Discussion Papers 4220, C.E.P.R. Discussion Papers.
    6. P. Butzen & S. Cheliout & E. De Prest & S. Ide & W. Melyn, 2016. "Why is investment in the euro area continuing to show only weak recovery ?," Economic Review, National Bank of Belgium, issue ii, pages 81-98, september.
    7. Zsolt Darvas, 2014. "In sickness and in health- protecting and supporting public investment in Europe," Policy Contributions 812, Bruegel.
    8. Achim Truger, 2015. "Implementing the Golden Rule for Public Investment in Europe: Safeguarding Public Investment and Supporting the Recovery. WWWforEurope Policy Paper No. 22," WIFO Studies, WIFO, number 57898.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. M. Kasongo Kashama, 2016. "Helicopter money and debt-financed fiscal stimulus : one and the same thing ?," Economic Review, National Bank of Belgium, issue iii, pages 31-40, December.
    2. P. Butzen & S. Cheliout & N. Cordemans & E. De Prest & W. Melyn & L. Van Meensel & S. Van Parys, 2017. "Towards a new policy mix in the euro area ?," Economic Review, National Bank of Belgium, issue iii, pages 63-91, December.
    3. P. Butzen & S. Cheliout & E. De Prest & S. Ide & W. Melyn, 2016. "Why is investment in the euro area continuing to show only weak recovery ?," Economic Review, National Bank of Belgium, issue ii, pages 81-98, september.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hans Pitlik & Michael Klien & Stefan Schiman-Vukan, 2017. "Stabilitätskonforme Berücksichtigung nachhaltiger öffentlicher Investitionen," WIFO Studies, WIFO, number 60595.
    2. Bańbura, Marta & Albani, Maria & Ambrocio, Gene & Bursian, Dirk & Buss, Ginters & de Winter, Jasper & Gavura, Miroslav & Giordano, Claire & Júlio, Paulo & Le Roux, Julien & Lozej, Matija & Malthe-Thag, 2018. "Business investment in EU countries," Occasional Paper Series 215, European Central Bank.
    3. Achim Truger, 2015. "Implementing the golden rule for public investment in Europe," Working Paper Reihe der AK Wien - Materialien zu Wirtschaft und Gesellschaft 138, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik.
    4. Francesco Saraceno, 2017. "Rethinking fiscal policy : lessons from the european monetary union," SciencePo Working papers Main hal-03457591, HAL.
    5. Jakob Kapeller & Claudius Graebner & Philipp Heimberger, 2019. "Economic Polarisation in Europe: Causes and Policy Options," ICAE Working Papers 99, Johannes Kepler University, Institute for Comprehensive Analysis of the Economy.
    6. repec:spo:wpmain:info:hdl:2441/eul7jlnf19iq8tdp0vlfv63n5 is not listed on IDEAS
    7. Francesco Saraceno, 2017. "Rethinking fiscal policy : lessons from the european monetary union," Working Papers hal-03457591, HAL.
    8. Monika Schnitzer & Achim Truger, 2022. "Finanzierung von Zukunftsinvestitionen: Pragmatische Lösungen sind gefragt [Financing Investments in the Future: Pragmatic Solutions Are Needed]," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 102(1), pages 11-14, January.
    9. repec:hal:spmain:info:hdl:2441/eul7jlnf19iq8tdp0vlfv63n5 is not listed on IDEAS
    10. Hickey, Rónán & Lozej, Matija & Smyth, Diarmaid, 2019. "Government Investment, Its Financing and the Public Capital Stock: A Small Open Economy Perspective," Research Technical Papers 9/RT/19, Central Bank of Ireland.
    11. Achim Truger, 2016. "The golden rule of public investment – a necessary and sufficient reform of the EU fiscal framework?," IMK Working Paper 168-2016, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    12. Feld, Lars P. & Schmidt, Christoph M. & Schnabel, Isabel & Truger, Achim & Wieland, Volker, 2019. "Den Strukturwandel meistern. Jahresgutachten 2019/20 [Dealing with Structural Change. Annual Report 2019/20]," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201920, September.
    13. Henri Bogaert, 2016. "Working Paper 01-16 - Improving the Stability and Growth Pact by integrating a proper accounting of public investments: a new attempt," Working Papers 1601, Federal Planning Bureau, Belgium.
    14. Hickey, Rónán & Lozej, Matija & Smyth, Diarmaid, 2020. "Financing government investment and its implications for public capital: A small open economy perspective," Economic Modelling, Elsevier, vol. 93(C), pages 620-641.
    15. Kose,Ayhan & Ohnsorge,Franziska Lieselotte & Ye,Lei Sandy & Islamaj,Ergys, 2017. "Weakness in investment growth : causes, implications and policy responses," Policy Research Working Paper Series 7990, The World Bank.
    16. Claudius Gräbner & Philipp Heimberger & Jakob Kapeller, 2019. "Economic Polarisation in Europe: Causes and Options for Action," wiiw Research Reports 440, The Vienna Institute for International Economic Studies, wiiw.
    17. 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.
    18. Mario Alloza & Danilo Leiva-León & Alberto Urtasun, 2022. "The response of private investment to an increase in public investment," Economic Bulletin, Banco de España, issue 2/2022.
    19. Marcello Minenna & Dario Aversa, 2019. "A Revised European Stability Mechanism to Realize Risk Sharing on Public Debts at Market Conditions and Realign Economic Cycles in the Euro Area," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 48(1), February.
    20. Carranza-Ugarte, Luis & Díaz-Saavedra, Julián & Galdon-Sanchez, Jose Enrique, 2023. "Rethinking fiscal rules," Journal of Comparative Economics, Elsevier, vol. 51(3), pages 833-857.
      • Luis Carranza Ugarte & Julian Diaz Saavedra & Jose Enrique Galdon-Sanchez, 2021. "Rethinking fiscal rules," ThE Papers 21/14, Department of Economic Theory and Economic History of the University of Granada..
    21. Moulaye Bamba & Jean-Louis Combes & Alexandru Minea, 2020. "The effects of fiscal consolidations on the composition of government spending," Applied Economics, Taylor & Francis Journals, vol. 52(14), pages 1517-1532, March.
    22. Doris Prammer & Lukas Reiss, 2017. "Three small essays on public investment: economic rationales, the EU fiscal framework and some statistical comparisons," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue Q4/17, pages 32-47.

    More about this item

    Keywords

    public investment; investment multipliers; Stability and Growth Pact; Belgium; Europe.;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbb:ecrart:y:2016:m:september:i:ii:p:99-113. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/bnbgvbe.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.