Government public infrastructure investment and economic performance in Spain (1980–2016)

Jose Perez-Montiel,Carles Manera

doi:10.1108/aea-03-2021-0077

Abstract

Purpose The authors estimate the multiplier effect of government public infrastructure investment in Spain. This paper aims to use annual data of the 17 Spanish autonomous communities for the 1980–2016 period. Design/methodology/approach The authors use dynamic acyclic graphs and the heterogeneous panel structural vector autoregressive (P-SVAR) method of Pedroni (2013). This method is robust to cross-sectional heterogeneity and dependence, which are present in the data. Findings The findings suggest that an increase in the level of government public infrastructure investment generates a positive and persistent effect on the level of output. Five years after the fiscal expansion, the multiplier effects of government public infrastructure investment reach values above one. This confirms that government public infrastructure investment expansions have Keynesian effects. The authors also find that the multiplier effects differ between autonomous communities with above-average and below-average GDP per capita. Originality/value To the best of the authors’ knowledge, no research uses dynamic acyclic graphs and heterogeneous P-SVAR techniques to estimate fiscal multipliers of government public investment in Spain by using subnational data.

Highlights

After the strong economic impact of the COVID-19, in Spain, there is a debate about what type of fiscal policy should be carried out
This justifies the use of the heterogeneous panel structural vector autoregressive (SVAR) of Pedroni (2013), which is robust to cross-sectional heterogeneity and dependence
The results suggest that public investment in productive infrastructure does directly increment the productive capacity of the economy, but through different backward and forward linkages it is capable to carry out notable multiplier effects on output even in the relatively short span of time (5 years) here considered

Summary

Introduction

After the strong economic impact of the COVID-19, in Spain, there is a debate about what type of fiscal policy should be carried out. The proposals to deal with the current economic and social crisis have been considerably different from those of 2010. The international Monetary Fund (IMF) and the European Commission (EC) are currently advocating for a public investment push to allow economies recovering from stagnation and to overcome the crisis. Even before the pandemic these institutions had started to advocate. The full terms of this licence maybe seen at http://creativecommons.org/ licences/by/4.0/legalcode

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