Government investment and the European Stability and Growth Pact
By: Marco Bassetto, Vadym Lepetyuk.
Contributors: Lepetyuk, Vadym.; National Bureau of Economic Research.
Series: NBER working paper series -- no. 13200.; Working paper series (National Bureau of Economic Research) -- working paper no. 13200.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 22
Subjects: Government spending policy -- Europe
Description: "We consider the effect of excluding government investment from the deficit subject to the limits of the European Stability and Growth Pact. In the model we consider, residents of a given country discount future costs and benefits of government spending more than efficiency would dictate, because they fail to take into account the portion that will accrue to people that have not yet been born or immigrated into the country. It is thus in principle desirable to design budget rules that favor long-term investment (by allowing more borrowing) over other government spending that only carries short-term benefits. However, given the low rates of population growth, mortality, and mobility across European countries, we find that the distortions arising from treating all government spending equally are likely to be modest. We also show that these modest distortions can be alleviated only if net government investment is excluded from the deficit computation; excluding gross investment may even be counterproductive, as it promotes overspending in government capital."--Abstract.
Notes: "June 2007"

Includes bibliographical references (p. 19-21).

Also available in PDF from the NBER world wide web site (www.nber.org).