Government public infrastructure investment and economic performance in Spain (1980–2016)

Abstract

Purpose: The authors estimate the multiplier effect of government public infrastructure investment in Spain. This paper aims to use annual data of the 17 Spanish autonomous communities for the 1980–2016 period. Design/methodology/approach: The authors use dynamic acyclic graphs and the heterogeneous panel structural vector autoregressive (P-SVAR) method of Pedroni (2013). This method is robust to cross-sectional heterogeneity and dependence, which are present in the data. Findings: The findings suggest that an increase in the level of government public infrastructure investment generates a positive and persistent effect on the level of output. Five years after the fiscal expansion, the multiplier effects of government public infrastructure investment reach values above one. This confirms that government public infrastructure investment expansions have Keynesian effects. The authors also find that the multiplier effects differ between autonomous communities with above-average and below-average GDP per capita. Originality/value: To the best of the authors’ knowledge, no research uses dynamic acyclic graphs and heterogeneous P-SVAR techniques to estimate fiscal multipliers of government public investment in Spain by using subnational data.