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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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United States

The 2008-09 financial crisis and recession inflicted considerable damage to the US economy – most notably a significant tightening of credit and the loss of one-quarter of household net worth between the middle of 2007 and early 2009 (OECD, 2010a). The US has lost more than 8 million jobs since the beginning of the crisis; the unemployment rate had risen to 10.1% by the end of 2009. Most states have suffered significant job losses. According to the analysis “Geography of a Recession” published in the New York Times, job losses have been most severe in areas that had experienced a big boom in housing, those that largely depend on manufacturing and those that already had the highest unemployment rates before the crisis (New York Times, 2010). H However, the economic recovery in the United States from arguably the most significant recession since the Great Depression of the 1930’s is underway, amid substantial economic stimulus, but uncertainty remained high in mid-2010 on the pace of recovery (OECD, 2010a).

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