Details
- Identification
- Discussion Paper 204
- Publication date
- 11 June 2024
- Authors
- Jan in ’t Veld | Philipp Pfeiffer | Gergő Motyovszki | Directorate-General for Economic and Financial Affairs
Description
This paper presents simulations with the Commission’s QUEST model to examine how a public investment stimulus could affect fiscal indicators under different circumstances.
Highlights
- Without offsetting fiscal adjustments via the primary balance, a temporary increase in public investment implies a sustained increase in the debt-to-GDP ratio.
- Only negative long-run interest-growth differentials could ensure that debt-to-GDP reverts to its baseline level without further budgetary adjustments.
- Raising primary surpluses by eroding the GDP share of fixed non-stimulus expenditures could also stabilise debt, but this amounts to a fiscal “quasi-consolidation”, underlining that public investment incurs fiscal costs and is not a free lunch.
- The need for public investments to be eventually paid for (in a narrow fiscal sense) does not preclude their potential to be welfare-improving for society.
Information and identifiers
Discussion Paper 204. June 2024. Brussels. PDF. 40pp. Tab. Graph. Bibliogr. Free.
KC-BD-23-021-EN-N (online)
ISBN 978-92-68-01822-4 (online)
ISSN 2443-8022 (online)
doi:10.2765/950026 (online)
JEL classification: E62, E63, H62, H63.
Disclaimer
European Economy Discussion Papers are written by the staff of the European Commission’s Directorate-General for Economic and Financial Affairs, or by experts working in association with them, to inform discussion on economic policy and to stimulate debate. The views expressed in this document are solely those of the author(s) and do not necessarily represent the official views of the European Commission.
