EIB Papers Volume 13. n°1/2008 - European Investment Bank

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Government transport investment has not consistently followed the ups and downs of fiscal balances. 48 Volume13 N°1 2008 EIB PAPERS Table 3 shows such contributions of both government transport investment and of overall government investment. The signs in the table show whether a change in government (transport) investment supported or counteracted the change in the fiscal balance. A positive sign signals support, that is, a decrease in investment when the fiscal balance improves or an increase in investment when the fiscal balance deteriorates. A negative sign denotes the opposite: Investment increases (decreases) while the fiscal balance improves (worsens). Take Germany as an example. Government transport investment contributed on average 5 percent to a change in fiscal balance (column 2), with transport investment increasing at times of fiscal improvement and contributing -9 percent to the improvement (column 3). During episodes of fiscal worsening, government transport investment grew as well, contributing on average 17 percent to the worsening (column 4). As regards total government investment, its contributions were -27 percent to fiscal improvements (that is, government investment increased) and 64 percent to worsening (again, government investment increased). Table 3. Contribution of government (transport) investment to changes in fiscal balance (in percent of the change in fiscal balance, 1973-95) Government investment in Transportation and communication Average Fiscal improvement Fiscal worsening Total government investment Average Fiscal improvement Fiscal worsening Germany 5 -9 17 23 -27 64 Observations 23 11 12 23 11 12 France 6 10 4 -41 -221 32 Observations 16 5 11 16 5 11 Italy 9 9 9 30 28 31 Observations 16 4 12 16 4 12 United Kingdom -14 -31 3 -38 -96 17 Observations 18 9 9 18 9 9 Source: Eurostat Note: Contributions are expressed in percent of change in the overall fiscal position. Data for Germany include ex-GDR from 1991. With this interpretation of Table 3 in mind, we conclude that government transport investment followed the ups and downs of the fiscal balances only in France and Italy. It increased in Germany and the United Kingdom regardless of the direction of change in the fiscal balance. However, the magnitude of increase (relative to the change in the fiscal position) in Germany was greater whenever the fiscal position worsened, while in the United Kingdom, government transport investment increased much more strongly whenever the fiscal balance improved. We must be careful in not interpreting these co-movements as pro- /counter-cyclical or as supporting/counteracting fiscal consolidation or relaxation efforts. In the absence of any knowledge about the source of changes in the fiscal balance (structural, cyclical, one-off, random) we cannot assess the specific role of government (transport) investment. The magnitudes of the contributions, mostly around 10 percent, seem small at the outset – but are they really? To make a judgement we consider the contributions of transport in relation to the contributions of total government investment, also shown in Table 3.
In considering the relative contributions of transport and total government investment to changes in the fiscal balance, we focus on episodes where the fiscal balance has improved. We know from Figure 12 that transport accounted, on average, for about one-quarter of total government investment. That share varied a little from country to country, with France at 15 percent and the other three countries at or above 25 percent. Take first Germany and the United Kingdom, where government transport investment increased even at times of fiscal improvement. In both countries also overall government investment increased when their fiscal positions improved. The increase in transport, relative to the improvement in the fiscal position, was in both cases exactly one-third of the increase in overall government investment. As the share of transport in overall government investment was smaller (around one-quarter), we can conclude that transport was not disadvantaged relative to other government investment at times of fiscal improvement. Then consider France and Italy, where transport declined when the overall fiscal position improved. In France, government transport investment contributed some 10 percent to the fiscal improvement, while other government investment actually increased. In Italy, both transport and other government investment contributed to the improvement, with transport accounting for one-third of the contribution of total government investment. To sum up, we can consider the behaviour of government transport investment in a broader fiscal perspective by two measures: First, did it move up and down with the fiscal balance and, second, were its movements “small” or “large” compared to other government investment at times of improving fiscal positions. In Germany and the United Kingdom, transport kept growing throughout, keeping pace with other government investment even at times of fiscal improvement. In France and Italy transport investment followed the ups and downs of the fiscal balance; however, in France transport contributed to fiscal improvements more than other government investment, while in Italy the contribution of transport investment was broadly in line with its weight in total government investment. All in all, government transport investment has not consistently followed the ups and downs of fiscal balances. Also, it has not been the case that government transport investment has consistently carried a disproportionate burden at times of improving fiscal balances. Whether the reaction of government transport investment in times of especially structural improvement in fiscal balances (discretionary fiscal tightening) is somehow different from other types of public investment cannot be assessed based on the analysis above; that we leave to future research to tackle. Government transport investment has not carried a disproportionate burden at times of fiscal improvement. EIB PAPERS Volume13 N°1 2008 49
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As the economic cost of public fund
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Recent cost-of-funds estimates acco
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The economic cost of public funds c
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High GDP growth in the new member s
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Further productivity gains, includi
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Table 2. Business constraints perce
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Where fiscal positions were sound,
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Despite progress, infrastructure de
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Table 7. Infrastructure indicators
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EU funds provide additional resourc
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Various empirical studies confirm t
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In some new member states there is
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PPPs offer new opportunities to fin
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Strong legal and institutional fram
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Additional fiscal reporting - even
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Fiscal adjustment and reforms need
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EIB Papers • Volume 13 • No1
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EIB Papers Volume 13. n°1/2008 - European Investment Bank

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