Making the Most of Public Investment in a Tight Fiscal Environment

Multi-level Governance Lessons from the Crisis

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How to make the most of public investment? This question is critical in today’s tight fiscal environment. Given that sub-national governments in OECD countries carry out more than two thirds of total capital investment, they have played a key role in executing national stimulus packages during the global crisis. The effectiveness of recovery strategies based on public investment thus depends largely on the arrangements between levels of government to design and implement the investment mix.  This report provides an overview of challenges met in the recovery and highlights good practices and lessons learned, focusing on eight country cases: Australia, Canada, France, Germany, Korea, Spain, Sweden and the United States. As stimulus packages are being phased out since 2010, many countries have moved toward fiscal consolidation and targeted public investment as an adjustment variable. Co-ordination between levels of government was essential to implement recovery measures, and it is equally important to better prioritise reduced public investment and make the most of it for sustainable growth.



The Australian economy weathered the crisis better than other economies in the OECD area. Australian GDP grew by 2.41% in 2008 and 1.24% in 2009, at a time when most other OECD economies were going through a deep recession. GDP growth was 2.6% in 2010 and is expected to reach 3.5% in 2011 (Economist Intelligence Unit, 2010). Yet, some regions in Australia, especially those with a focus on mining, tourism and manufacturing, seem to have suffered disproportionately from the crisis.1 Australia’s overall very robust position was owed to a comparatively less exposed banking sector, the government’s fiscal surplus and swiftly introduced stimulus measures, the Reserve Bank of Australia’s monetary response as well as China’s continued demand for Australian commodities.


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