Public capital spending in The Netherlands: developments and explanations

Abstract

As in many other OECD countries, government investment expressed as share of GDP has decreased in The Netherlands. Using the concept of Granger causality, we test in a bivariate vector autoregression framework various hypothesis that have been put forward to explain this decline. It is concluded that private investment and output are related to public investment. Demographic variables also influence public investment. The number of future civil servants affects investment in buildings. Our results do not support the view that higher interest burdens crowded out public investment. Finally, no confirmation is found for the idea that additional infrastructure triggers growth of the number of vehicles.