public investment in europe: evolution and determinants eric perée head, economic and financial...
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Eric Perée Economic and Financial Studies, EIB 3 Public investment: What is it (not)? IT IS: Investment spending financed directly from the budget of the federal or subnational government. IT IS NOT: Investment spending by enterprises — even if they are state-owned.TRANSCRIPT
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Public investment in Europe:Evolution and determinants
Eric PeréeHead, Economic and Financial Studies, EIB
Strengthening public investment and managing fiscal risks from PPPs, Budapest, 7-8 March, 2007
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2Eric PeréeEconomic and Financial Studies, EIB
ContentsContents
Public investment: What is it (not)? Public investment: trends and composition Determinants of public investment Conclusions
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3Eric PeréeEconomic and Financial Studies, EIB
Public investment: What is it (not)?Public investment: What is it (not)? IT IS: Investment spending financed
directly from the budget of the federal or subnational government.
IT IS NOT: Investment spending by enterprises — even if they are state-owned.
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4Eric PeréeEconomic and Financial Studies, EIB
ContentsContents
Public investment: What is it (not)?Public investment: What is it (not)? Public investment: trends and composition Determinants of public investmentDeterminants of public investment
EMU, PPPsEMU, PPPs
ConclusionsConclusions
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5Eric PeréeEconomic and Financial Studies, EIB
Public investment: Public investment: downtrend in “non-cohesion” EU-15downtrend in “non-cohesion” EU-15
1.5
2.5
3.5
4.5
5.5
1970 1980 1990 2000
EU-15 4 largest 6 others
Source: OECD, own calculations
Public investment in % of GDP (GDP weighted averages)
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6Eric PeréeEconomic and Financial Studies, EIB
Public investment: Public investment: uptrend in Cohesion and EU-8uptrend in Cohesion and EU-8
1.5
2.5
3.5
4.5
5.5
1970 1980 1990 2000
EU-15 Cohesion EU-8
Source: OECD, own calculations
Public investment in % of GDP (GDP weighted averages)
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7Eric PeréeEconomic and Financial Studies, EIB
Public capital stocks continue to growPublic capital stocks continue to grow
“Non-cohesion” EU-15 public investment flows trended down, but no clear sign of fall in public investment in cohesion countries.
But EU-15 public capital stocks have: Stayed stable in relation to GDP Grown in real terms
Optimal size of public capital stocks?
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8Eric PeréeEconomic and Financial Studies, EIB
Half of public investment infrastructure,Half of public investment infrastructure,with big cross-country differenceswith big cross-country differences
0
1
2
3
4
GE FR IT UK AT BE DK FI NL SW
Infra HC infra
Public goods Redistribution
Source: New Cronos, own calculations and definitions
Investment by general government (in % of GDP, average 2000-05)
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9Eric PeréeEconomic and Financial Studies, EIB
Half of public investment infrastructure,Half of public investment infrastructure,with big cross-country differenceswith big cross-country differences
0
1
2
3
4
5
GR SP PT CZ ES LV LT HU PL SN SV
Infra HC infra
Public goods Redistribution
Source: New Cronos, own calculations and definitions
Investment by general government (in % of GDP, average 2000-05)
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10Eric PeréeEconomic and Financial Studies, EIB
ContentsContents
Public investment: What is it (not)?Public investment: What is it (not)? Public investment: trends and compositionPublic investment: trends and composition Determinants of public investment ConclusionsConclusions
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11Eric PeréeEconomic and Financial Studies, EIB
Net worth turned negative Net worth turned negative
-80
-60
-40
-20
0
20
40
60
AT BE DK FI FR DE GR IR IT NL PT SP SW UK
1981 2001
Source: Kamps (2004), OECD
Public capital less public debt as a share of GDP, %
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12Eric PeréeEconomic and Financial Studies, EIB
EU-15 public investmentEU-15 public investmentnot affected by EMUnot affected by EMU
EMU fiscal rules often blamed for downtrend in EU-15 public investment
Empirical evidence suggests that EMU, per se, has not affected public investment in EU-15, and certainly not in Cohesion countries
Instead, drawn-out fiscal problems and consolidation, unrelated to EMU, explain the downtrend in EU-15
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13Eric PeréeEconomic and Financial Studies, EIB
PPPs geographically concentrated PPPs geographically concentrated
8%
40%
23%
UK othersUK (LU)UK (CTRL)PortugalItalyGreeceSpainNetherlandsOthers
Source: ProjectWare, HMT
Signed value of PPP contracts, 1995-2003 (total €108 billion)
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14Eric PeréeEconomic and Financial Studies, EIB
PPPs not turned the trend even in UKPPPs not turned the trend even in UK
0
1
2
3
4
5
6
1970 1980 1990 2000
Source: OECD, HMT
Public investment as a share of GDP, %
Public investment without PPPs
Public investment plus PPPs
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15Eric PeréeEconomic and Financial Studies, EIB
PPPs significant in UK, Portugal PPPs significant in UK, Portugal
0
1
2
3
4
5
6
GR IR IT NL PT SP UK UK exclCTRL
PPP
Public I
Source: ProjectWare, HMT, OECD
Signed PPP contracts (stock) and public investment (flow), in % of GDP (average 1995-2003)
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16Eric PeréeEconomic and Financial Studies, EIB
ConclusionsConclusions Public investment is investment by the government.
It is not investment by (public) enterprises. Public investment, as a share of GDP, has declined
in non-cohesion countries only. Even there, public capital stocks have not shrunk.
The decline is due to drawn-out episodes of fiscal consolidation, unrelated to EMU’s fiscal rules per se.
PPPs have been geographically concentrated and significant in size only in the UK and Portugal.
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17Eric PeréeEconomic and Financial Studies, EIB
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18Eric PeréeEconomic and Financial Studies, EIB
Infrastructure accounts forInfrastructure accounts forhalf of public investment half of public investment
0%
20%
40%
60%
80%
100%
GE FR IT UK AT BE DK FI NL SWSource: New Cronos, own calculations and definitions
in % of total investment by general government (average 2000-05)
Infra
HC infra
Public goods
Redistribution
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19Eric PeréeEconomic and Financial Studies, EIB
Infrastructure accounts forInfrastructure accounts forhalf of public investmenthalf of public investment
0%
20%
40%
60%
80%
100%
GR SP PT CZ ES LV LT HU PL SN SVSource: New Cronos, own calculations and definitions
in % of total investment by general government (average 2000-05)
Infra
HC infra
Public goods
Redistribution