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Implementing the Golden Rule for Public Investment in Europe: Safeguarding Public Investment and Supporting the Recovery. WWWforEurope Policy Paper No. 22

Author

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  • Achim Truger

    (Berlin School of Economics and Law)

Abstract

Most parts of the Euro area have seen seven years of deep economic crisis. The strategy of tightening the fiscal constraints of the Stability and Growth Pact has driven many member countries into austerity. In contrast, the golden rule of public investment proposed in this study would be one important element of the necessary institutional reform. The rule is widely accepted in traditional public finance and would allow financing net public investment by government deficits thus promoting intergenerational fairness as well as economic growth. A pragmatic version focusing on net public investment as defined in the national accounts minus military expenditures plus investment grants for the private sector could quickly be implemented. Net public investment should be deducted from the relevant deficit measures of the Stability and Growth Pact and the fiscal compact. Over time it could be technically and statistically refined and potentially include other – more intangible – types of investment-like education expenditures. As political implementation would probably take some time, the golden rule would have to be complemented by expansionary fiscal policy to provide the urgently needed boost to the European economy in the short term. This could be done by a short-term European Investment Programme similar to the 2008 European Economic Recovery Programme during the Great Recession. Such a programme could also allow for investment needs beyond the narrow national accounts definition to contribute to public investment in a broader sense, e.g., for expenditure related to the currently neglected Europe 2020 goals such as social inclusion.

Suggested Citation

  • 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, January.
    • Handle: RePEc:wfo:wstudy:57898
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    References listed on IDEAS

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    2. Zharku Lutfi, 2018. "(Un)Productive Use of Public Debt in Kosovo," Ekonomika (Economics), Sciendo, vol. 97(2), pages 18-37, December.
    3. 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.
    4. Philippa Sigl-Gloeckner & Max Krahé & Pola Schneemelcher & Florian Schuster & Viola Hilbert & Henrika Meyer, 2021. "Eine neue deutsche Finanzpolitik," Working Papers 2, Forum New Economy.
    5. 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.
    6. 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.
    7. Eckhard Hein & Eckhard Achim Truger, 2017. "Opportunities and limits of rebalancing the Eurozone via wage policies," FMM Working Paper 06-2017, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    8. 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.
    9. Jan Behringer & Till van Treeck & Achim Truger, 2020. "Das deutsche Modell: Wie kann der Leistungsbilanzüberschuss abgebaut werden?," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 100(10), pages 753-757, October.
    10. Heine, Michael & Herr, Hansjörg, 2022. "Fiskalische Spielräume für eine offensive Wohnungsbaupolitik," IPE Working Papers 176/2021, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    11. Sara Casagrande & Bruno Dallago, 2022. "Socio-Economic and Political Challenges of EU Member Countries: Grasping the Policy Direction of the European Semester," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 64(3), pages 487-519, September.
    12. 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.
    13. Pompeo Della Posta, 2018. "Fiscal austerity and monetary easing: which one is to be praised for ending the euro area crisis?," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 15(1), pages 165-189, June.
    14. Sigl-Glöckner, Philippa & Krahé, Max & Schneemelcher, Pola & Schuster, Florian & Hilbert, Viola & Meyer, Henrika, 2021. "Eine neue deutsche Finanzpolitik," Papers 277883, Dezernat Zukunft - Institute for Macrofinance, Berlin.
    15. Oliver Picek & Enno Schröder, 2018. "Spillover effects of Germany's final demand on Southern Europe," The World Economy, Wiley Blackwell, vol. 41(8), pages 2216-2242, August.
    16. Shvets, Serhii, 2020. "The golden rule of public finance under active monetary stance: endogenous setting for a developing economy," MPRA Paper 101232, University Library of Munich, Germany.
    17. Oliver Picek, 2018. "Kann nationale Konjunkturpolitik noch Beschäftigung schaffen?," Working Paper Reihe der AK Wien - Materialien zu Wirtschaft und Gesellschaft 180, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik.
    18. Philipp Heimberger, 2022. "Österreichs Gemeinden im Kontext der Covid-19-Krise: Finanzausgleich bei steigenden Investitionsbedarfen und sinkenden Einnahmen," wiiw Research Reports in German language 20, The Vienna Institute for International Economic Studies, wiiw.

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