Is a €10 Trillion European Climate Investment Initiative Fiscally Sustainable?

To what extent large-scale public investment efforts could be a viable tool to provide the […]

Policy Study

19/10/2021

To what extent large-scale public investment efforts could be a viable tool to provide the necessary infrastructure to break Europe’s dependency on fossil fuel and carbon emissions?

The private sector’s poor track record for providing the required scale of financing for this infrastructure and the limited time left make it necessary to assess strategies that do not primarily rely on slowly changing price signals or the private sector’s own initiative.

To shed light on these matters, this Policy Study estimates semi-structural vector autoregression (VAR) models for the EU27. These are used to study the impact of permanent – as well as 5 years long – public investment programmes.

Download the Policy Study and the Technical Appendix

Three key findings emerge:

First, government investment multipliers for the EU27 are large and range from 5.12 to 5.25, meaning that each euro of additional public investment leads to an increase in GDP of about €5 after 10 years.

Second, debt-to-GDP ratios are likely to fall in response to the strong economic impulse generated by additional public investment spending. Therefore, the study classifies additional public investment spending in the EU27 as a sustainable fiscal policy.

Third, single country investment initiatives will likely lead to smaller economic expansions when compared to coordinated EU-wide investment due to Europe’s strong intra-member state trade flows. A coordinated approach to fiscal policy is thus substantially more effective not only when it comes to delivering network-dependent infrastructure (rail, grid) but also with respect to the economic stimulus it creates.

The Technical  Appendix of the Publication

This appendix outlines the VAR model and the data which was used to produce the results of the main document.

Most importantly it provides an exact definition of the key concepts such as the long run multipliers (LRMs), the cumulative impulse response functions (CIRFs) and the semi-permanent impulse response functions (SPIRFs).

The appendix also outlines how long run multipliers were averaged across EU27 member states and provides a brief derivation of the standard law of motion for government debt used in section 2 of the main report.

Download the Technical Appendix

Related materials

– A European Wealth Tax for a Fair and Green Recovery | The second Policy Study of this series by Jakob Kapeller, Stuart Leitch and Rafael Wildauer
– How to Boost the European Green Deal’s Scale and Ambition | The first Policy Study of this series by Jakob Kapeller, Stuart Leitch and Rafael Wildauer

Projects

Find all related publications
Publications
21/11/2022

The EU and North Africa: Towards a just Twin Transition?

In an era marked by a deficiency in sustainable growth and a profusion of novel […]
04/10/2022

Europe’s social integration

Welfare models and economic transformations
13/07/2022

The EU’s transition to climate justice and gender equality

How just and how equal?
06/07/2022

Countering economic coercion

European Strategic Autonomy series - Economy & Trade
Find all related events
Events
Upcoming
15/12/2022
Rome, Italy

National Recovery & Resilience Plans: Assessing to improve

Recovery Watch series
Past
28/11/2022
FEPS HQ, Brussels (Closed-door)

Breaking down the silos

Climate mainstreaming and holistic policy design in the face of multiple transitions
21/11/2022
Brussels, Belgium

A just energy transition

Access to energy as a right, not a privilege
Find all related news
News
15/11/2022

FEPS delegation at COP27

FEPS delegation was present at COP27, with the strategic objectives of mobilizing climate finance for […]
18/10/2022

Open letter to call for a deep reform of the EU fiscal rules

FEPS cosigned an open letter to EU leaders calling for them to address the underlying structural […]
30/05/2022

FEPS launches ‘Recovery Watch’, a new research project

The National Recovery and Resilience Plans represent the new framework in which member states will identify their […]
10/05/2022

Call to participants: Training Days for Social Business

Switzerland, September 3rd 2022
Find all related in the media
In the media

La doble transición verde y digital como arma contra los depredadores de la energía

by Crónica Global 18/11/2022
Article by Pau Solanilla, Director of Fundació Rafael Campalans, ahead of the FEPS-Campalans event 'Figuring out the Twin Transition'

El reto de las Smart Cities, combinar digitalización y sostenibilidad

by ABC 18/11/2022
Article by Pau Solanilla, Director of Fundació Rafael Campalans, ahead of the FEPS-Campalans event 'Figuring out the Twin Transition'

Los retos de la doble transición sostenible y digital

by elEconomista.es 16/11/2022
Article by Pau Solanilla, Director of Fundació Rafael Campalans, ahead of the FEPS-Campalans event 'Figuring out the Twin Transition'

Sulle riforme del pnrr sull’inclusione serve partecipazione dei territori

by ANSA 06/10/2022
Interview with FEPS Director of Studies and Policy David Rinaldi