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.



As an export-oriented country with an open capital account, Korea has been severely hit by the global financial crisis. The decline in exports was particularly sharp given Korea’s concentration on medium and high-technology products, which are very cyclically sensitive. Korea’s GDP decreased by 17% (at an annual rate) in the fourth quarter of 2008, more than double the average drop of GDP in OECD member countries (OECD, 2010a: 22). However, it should be mentioned that the Korean economy was already slowing prior to the intensification of the global financial crisis in September 2008, reflecting the US recession that had begun in December 2007, rising oil prices and the impact of tighter monetary policy.


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