Fiscal federalism and the composition of public investment in Europe |
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Authors: | Andreas Kappeler,Timo V lil |
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Affiliation: | aMunich Graduate School of Economics, Ludwig-Maximillians-Universität, D-80539 Munich, Germany;bEconomic and Financial Studies Division, European Investment Bank, L-2950 Luxembourg |
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Abstract: | We analyse the determinants of the composition of public investment in Europe, with a special focus on the role of fiscal decentralisation. The results suggest that fiscal decentralisation boosts economically productive public investment, notably infrastructure, and curbs the relative share of economically less productive investment, such as recreational facilities. While not readily reconcilable with the traditional theory of fiscal federalism, these findings can be interpreted in terms of the literature on fiscal competition, with not only tax rates but also the quality of public expenditure weighing in firms' location decisions. |
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