Hostname: page-component-586b7cd67f-dlnhk Total loading time: 0 Render date: 2024-11-29T13:08:29.445Z Has data issue: false hasContentIssue false
  • English
  • Français

A Public Investment Stimulus in Surplus Countries and Its Spillovers in the EA

Published online by Cambridge University Press:  01 February 2017

Jan in't Veld
Jan in't Veld*
Affiliation:
DG Economic and Financial Affairs, European Commission
*
E-mail: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

The Euro Area recommendations endorsed by the European Council in 2016 called for a differentiation of the fiscal effort by individual Member States, taking into account spillovers across Euro Area countries. This article shows model-based simulations of an increase in public investment in Germany and the Netherlands and their spillovers to the rest of the Euro Area. While spillovers in a monetary union may be small when monetary policy reacts by raising interest rates, when rates are kept constant and the stimulus is accommodated, spillovers can be sizeable. An increase in (productive) spending in Germany and the Netherlands can boost GDP in these countries and also have significant positive spillovers on the rest of EA GDP, while the effects on current accounts are likely to be small. Effects can be even larger when investment is directed to the most productive projects. With low borrowing costs at present, the increase in government debt for surplus countries will be modest, while there could be an improvement in debt ratios in the rest of the Euro Area.

Keywords

Fiscal policyMonetary policy accommodationEuro AreaE62F41F45
Type
Research Articles
Information
National Institute Economic Review , Volume 239 , February 2017 , pp. R53 - R62
Copyright
Copyright © 2017 National Institute of Economic and Social Research

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

The views expressed in this paper are those of the author and should not be attributed to the European Commission. This paper is an updated version of in't Veld (2016).

References

Blanchard, O., Erceg, C. and Linde, J. (2015), ‘Jump starting the Euro Area recovery: would a rise in core fiscal spending help the periphery?’, NBER Working Paper 21426.CrossRefGoogle Scholar
Bom, P. and Ligthart, J. (2014), ‘What have we learned from three decades of research on the productivity of public capital?’, Journal of Economic Surveys, 28(5), pp. 889–916.CrossRefGoogle Scholar
Bundesministerium für Wirtschaft und Energie (BMWi) (2015), ‘Auswirkungen höherer öffentlicher Investitionen in Deutschland auf die Wirtschaft des Euroraums’, Monatsbericht, 7-2015.Google Scholar
Carreras, O., Kirby, S., Liadze, I. and Piggot, R. (2016), ‘Fiscal policy spillovers’, NIESR Discussion Paper No. 468.Google Scholar
Deutsche Bundesbank (2016), ‘The international spillover effects of an expansion of public investment in Germany’, Monthly Report August 2016.Google Scholar
European Central Bank (2016), ‘Public investment in Europe’, ECB Economic Bulletin, 2/16, pp. 75–88.Google Scholar
European Commission (2016), ‘Towards a positive fiscal stance for the Euro Area’ (COM(2016) 727), https://ec.europa.eu/info/publications/2017-european-semester-communication-fiscal-stance_en.Google Scholar
Elekdag, S. and Muir, D. (2014), ‘Das Public Kapital: how much would higher German public investment help Germany and the Euro Area?’CrossRefGoogle Scholar
IMF Working Papr 14/227. IMF (2014), ‘Is it time for an infrastructure push? The macroeconomic effects of public investment’, Chapter 3 in World Economic Outlook, October.Google Scholar
In't Veld, J. (2013), ‘Fiscal consolidations and spillovers in the Euro Area periphery and core’, ECFIN Economic Papers 506.Google Scholar
In't Veld, J. (2016), ‘Public investment stimulus in surplus countries and their Euro Area spillovers’, ECFIN Economic Briefs 16, Brussels.Google Scholar
Kollmann, R., Ratto, M., Roeger, W., in't Veld, J. and Vogel, L. (2015), ‘What drives the German current account? And how does it affect other EU member states?’, Economic Policy, 30, pp. 47–93.CrossRefGoogle Scholar
Leeper, E.M., Walker, T.B. and Yang, S.-C. S. (2010), ‘Government investment and fiscal stimulus’, Journal of Monetary Economics, Elsevier, 57(8), pp. 1000–12, November.CrossRefGoogle Scholar
OECD (2016), Economic Outlook, Volume 2016, Issue 2.Google Scholar