Modelling Government Investment and Economic Growth on a Macro Level: A Review

During the 1970s and 1980s many OECD countries have offset increases in debt interest payments and rising social security transfers by winding back public investment. Figure 14.1 shows government investment (excluding residential buildings) as a share of GDP for 18 OECD countries over the period 1970–92. The data relate to consolidated general government and have been taken from the Standardised National Accounts compiled and published by the OECD. As follows from Figure 14.1, public capital spending as a share of GDP declined or remained stable in almost all countries between 1970 and 1992. Spain and Portugal are exceptions. In order to become more competitive within the European Union, these countries undertook extensive programmes of upgrading their stock of public capital. A small rise occurred also in Italy. Another conclusion that can be drawn from figure 14.1 is that the level of government investment spending varies considerably across countries, ranging between 1.3 per cent of GDP for the UK and 5.8 per cent for Switzerland in 1992.