"This paper identifies public investment as an efficient and significant tool for addressing the issue of the widening productivity gap between the EU and its main trading partners. Specifically, the paper estimates the impact of net public investment growth on net private investment growth and non-agricultural private sector labour productivity growth, excluding the real estate sector. Results suggest that an ambitious public investment strategy might be able to steer private investment and boost productivity growth. Additionally, the paper assesses whether the debt sustainability analysis (DSA) framework employed by the European Commission would allow the implementation of an ambitious public investment programme or impose constraints, instead. The structure of the DSA framework suffers from four fundamental flaws: (i) the estimation of potential output merely replicates national account identities; (ii) the output gap is inefficient in capturing inflationary dynamics and hysteresis effects; (iii) investment in general, and public investment in particular, is undermined in the DSA framework; and (iv) the fiscal multipliers assumed by the European Commission are unrealistically small. Given these flaws, the DSA framework ought to be re-contextualised in order to support the implementation of a public investment strategy."

Support: Digital;Paper

ISBN (PDF) : 1994-4454

Legal deposit : D/2025/10.574/32