The ECB said that public investment compared to Gross Domestic Product (GDP) is at minimum levels in Europe and suggested that some countries, such as Portugal, need to stimulate it, but through a careful selection of projects.
The institution said that after Croatia, Portugal was the country where public investment as a percentage of GDP fell most.
“Since the crisis, public investment fell in a series of countries, particularly those that were being pressured by the markets”, the authors of the article Marien Ferdinandusse, Alessandro Giovannini and Ígor Vetlov said.
On the other hand, Belgium, Germany and Austria, which had relatively low levels of public investment before the crisis, saw public investment in terms of GDP neither rise nor fall.
An increase in public investment funded by debt has positive effects on demand with little effect on the borrowing rate if the investment projects are carefully selected according to the authors, who used simulation models for their calculations.