Abstract
This paper evaluates the impact of the structural and cohesion funds received by Spain in the period 2007–2013. The analysis is performed with a detailed computable general equilibrium (CGE) model calibrated with a SAM for Spain in 2005 elaborated by the authors, which contains highly detailed information on capital goods and tax rates. The aim of this paper is to quantify the short-run effects of the EU funds in the Spanish economy, which can help economic recovery. Additionally, it is evaluated to what extent these short-run effects may be over- or underestimated due to the closure rule used in this kind of models (neoclassical or Keynesian). The closure determines the endogenous variables in the market clearance conditions, and they affect the results of shocks in final demand. The conclusions show that neoclassical closure, used in previous CGE studies done for Spain, underestimates the impact they have on employment and GDP and captures a fictitious shock in private investment. In this case, employment and real GDP do not almost change, while under Keynesian rule they increase in 1.2 and 0.68%, respectively. These results invalidate some of the estimates derived from previous studies and suggest that the best option to quantify the likely positive short-run effects of raising public investment is only captured through Keynesian closure.
Highlights
The impact of structural and cohesion funds is a matter of regional interest
The main objective of this paper is to evaluate the short-run effects of the European Regional Funds received by Spain in 2007–2013, a period of economic crisis and Álvarez‐Martínez and Polo Economic Structures (2017) 6:21 recession,1 and analyze, with a highly detailed computable general equilibrium (CGE) model, to what extent these short-run effects may be overestimated or underestimated by the closure rule
Keynesian closure can be a better option because private investment is an exogenous variable and there are no fictitious booms after altering other final demand components (Partridge and Rickman 1998)
Summary
The impact of structural and cohesion funds is a matter of regional interest. The European Regional Development Fund (ERDF) and the European Social Fund (ESF) have spurred the economic growth of those European regions lagging behind the 75% of EU-15 (EU-25) average GDP per capita for more than 20 years. The most common closure is the neoclassical, where investment is an endogenous variable determined by public and private savings This is the general rule used in previous studies elaborated for Spanish regions (Monrobel et al 2013; Cardenete and Delgado 2012, 2013), where the effects of the funds are simulated altering final demand. Under Keynesian closure rule, aggregate investment is exogenously determined and it is the sum of private savings, the government deficit and the current account deficit that adjusts to equal the value of investment when there is a negative external shock In this case, an investment boom is ruled out by hypothesis and the real wage-unemployment equation present in neoclassical closure is removed from the model.
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