Conferences :: Public Sector Economics 2017 :: Rationale
The recovery from the global financial crisis has until recently been relatively modest and uneven, led mainly by private consumption. It has been characterised by weak investment and productivity growth, low inflation, and historically low short- and long-term interest rates. These conditions, it has been argued, provide a unique opportunity to increase productive public spending. By locking in low interest rates with long-maturity borrowing, well-targeted spending on education, health or research and development, significant output gains could be obtained in the long run. Infrastructure needs are also sizeable in many countries, not least because post-crisis fiscal consolidation has significantly lowered public capital spending ratios. In such a situation, additional public investment should generate high rates of return, after allowing for risk, provided that good governance is in place.

Against this background, many international fora have recommended an increase in public investment to support demand and employment in the short run, and to catalyse private investment and growth-enhancing innovation in the long run. Still, questions remain about the ability of governments to identify and implement large-scale investment projects, size of public investment multipliers, the long-term returns on public capital, and the impact of higher public investment on debt sustainability.

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