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Making the Most of Public Investment in a Tight Fiscal Environment

Multi-level Governance Lessons from the Crisis

image of Making the Most of Public Investment in a Tight Fiscal Environment

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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Spain

Spain experienced a period of sustained economic growth before the global financial crisis hit in the second half of 2008. Spanish GDP declined by 3.6% in 2009 and was expected to contract by another 0.5% in 2010. With negative growth rates throughout 2010, the economic downturn in Spain will be longer than in most other OECD member countries (OECD, 2010).

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