Download and public investment

Public investment in Europe:
Evolution and determinants
Eric Perée
Head, Economic and Financial Studies, EIB
Strengthening public investment and managing fiscal risks from PPPs,
Budapest, 7-8 March, 2007
Contents

Public investment: What is it (not)?

Public investment: trends and composition

Determinants of public investment

Conclusions
Eric Perée
Economic and Financial Studies, EIB
2
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.
Eric Perée
Economic and Financial Studies, EIB
3
Contents

Public investment: What is it (not)?

Public investment: trends and composition

Determinants of public investment


EMU, PPPs
Conclusions
Eric Perée
Economic and Financial Studies, EIB
4
Public investment:
downtrend in “non-cohesion” EU-15
5.5
Public investment in % of GDP (GDP weighted averages)
EU-15
4 largest
6 others
4.5
3.5
2.5
1.5
1970
1980
Eric Perée
Economic and Financial Studies, EIB
1990
2000
Source: OECD, own calculations
5
Public investment:
uptrend in Cohesion and EU-8
5.5
Public investment in % of GDP (GDP weighted averages)
EU-15
Cohesion
EU-8
4.5
3.5
2.5
1.5
1970
1980
Eric Perée
Economic and Financial Studies, EIB
1990
2000
Source: OECD, own calculations
6
Public 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?
Eric Perée
Economic and Financial Studies, EIB
7
Half of public investment infrastructure,
with big cross-country differences
4
Investment by general government (in % of GDP, average 2000-05)
Infra
HC infra
Public goods
Redistribution
3
2
1
0
GE
FR
IT
UK
Eric Perée
Economic and Financial Studies, EIB
AT
BE
DK
FI
NL
SW
Source: New Cronos, own calculations and definitions
8
Half of public investment infrastructure,
with big cross-country differences
5
Investment by general government (in % of GDP, average 2000-05)
4
Infra
HC infra
Public goods
Redistribution
3
2
1
0
GR
SP
PT
CZ
Eric Perée
Economic and Financial Studies, EIB
ES
LV
LT
HU
PL
SN
SV
Source: New Cronos, own calculations and definitions
9
Contents

Public investment: What is it (not)?

Public investment: trends and composition

Determinants of public investment

Conclusions
Eric Perée
Economic and Financial Studies, EIB
10
Net worth turned negative
60
Public capital less public debt as a share of GDP, %
1981
2001
40
20
0
-20
-40
-60
-80
AT BE DK FI FR DE GR IR
Eric Perée
Economic and Financial Studies, EIB
IT NL PT SP SW UK
Source: Kamps (2004), OECD
11
EU-15 public investment
not 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
Eric Perée
Economic and Financial Studies, EIB
12
PPPs geographically concentrated
Signed value of PPP contracts, 1995-2003 (total €108 billion)
UK others
UK (LU)
UK (CTRL)
Portugal
40%
Italy
Greece
Spain
8%
Netherlands
23%
Eric Perée
Economic and Financial Studies, EIB
Others
Source: ProjectWare, HMT
13
PPPs not turned the trend even in UK
Public investment as a share of GDP, %
6
Public investment without PPPs
5
4
Public investment
plus PPPs
3
2
1
0
1970
1980
Eric Perée
Economic and Financial Studies, EIB
1990
2000
Source: OECD, HMT 14
PPPs significant in UK, Portugal
6
Signed PPP contracts (stock) and public investment (flow),
in % of GDP (average 1995-2003)
PPP
5
Public I
4
3
2
1
0
GR
IR
IT
Eric Perée
Economic and Financial Studies, EIB
NL
PT
SP
UK
UK excl
CTRL
Source: ProjectWare, HMT, OECD
15
Conclusions

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.
Eric Perée
Economic and Financial Studies, EIB
16
Eric Perée
Economic and Financial Studies, EIB
17
Infrastructure accounts for
half of public investment
100%
in % of total investment by general government (average 2000-05)
Redistribution
80%
Public goods
60%
HC infra
40%
20%
Infra
0%
GE
FR
IT
Eric Perée
Economic and Financial Studies, EIB
UK
AT
BE
DK
FI
NL
SW
Source: New Cronos, own calculations and definitions 18
Infrastructure accounts for
half of public investment
in % of total investment by general government (average 2000-05)
100%
Redistribution
80%
Public goods
60%
HC infra
40%
20%
Infra
0%
GR
SP
PT
Eric Perée
Economic and Financial Studies, EIB
CZ
ES
LV
LT
HU
PL
SN
SV
Source: New Cronos, own calculations and definitions 19