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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.

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Executive Summary

OECD member countries and regions currently face a narrow path to long-term growth. As stimulus packages are phased out, the priority of many OECD member countries is to restore fiscal sustainability. In 2011, gross government debt is expected to exceed 100% of GDP in the OECD area, with some countries moving well beyond this figure. After the stimulation period of 2008-09, public investment is now a target of cuts in many countries and regions, and seems in some cases to be used as the adjustment variable. Faced with the challenge of supporting growth in such a tight fiscal environment, national and sub-national governments face the imperative of “doing better with less.”

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