Recent advances in public investment, fiscal policy and growth

The aim of this paper is to review to what extent public investment, public capital and fiscal policy in general affect growth, and through which channels this impact is working. The first part examines the positive relation between public expenditure and capital on economic growth, highlighting trends and the role of different categories of expenditure. We also survey a recent and promising interest in the explicit analysis of distributional and inequality reducing effects of increases in productive public investment. The second part instead focuses on fiscal policy, taking into account both the revenue and expenditure side, and examining the role played by fiscal consolidation rules and adjustments, and stresses the link between public investment, fiscal consolidation and growth, reviewing some influential proposals for a reform of fiscal rules that take these issues into account explicitly. The interplay between government investment, fiscal rules and growth is the basis for the concluding section which presents some directions for future research