Volume 8, Issue Supplement

This article provides an overview of both theoretical and empirical literature on the link between public investment (capital) and economic growth (national income). We first survey the channels through which public capital can conceivably affect growth.We then turn to reviewing the existing empirical literature, and we conclude that although not all studies find a growth-enhancing effect of public capital, there is now more consensus than in the past that public capital furthers economic growth. However, the impact reported by recent studies is not as big as some earlier studies suggested. We conclude with an overview of what is known about the optimality of public capital stocks. 52

In Germany the sustainability of fiscal policy is determined to a substantial part by the federal states (Bundeslaender). Their portion of the public debt amounts to nearly 40 percent. Econometric tests show that the fiscal policy of the federal states taken collectively is not sustainable. The requirement for fiscal sustainability is fulfilled only by two western Laender, Hesse and North-Rhinek Westphalia, and one eastern Land (Saxony). Furthermore, it is shown that the constitutional „golden rule“ stipulating that borrowing should not exceed investment expenditures does not ensure the solvency of the states. This holds for theoretical reasons but also because there is a lack of clarity and enforceability. Finally, it is argued that the commitment of subnational governments to sustainable public finances could be strengthened by invigorating state-level tax and expenditure autonomy.

The article examines the fiscal adjustments necessary in East Germany to ensure that the East German state and local government sector runs a sustainable fiscal policy in the next decades and maintains a high level of public investment expenditures. The latter is of special importance in East Germany because in some areas the public infrastructure capital stock in East Germany is still deficient as compared to West German standards. In addition, regional development policy still uses capital subsidies to attract mobile business capital to East Germany. These subsidiesare co-financed by the East German state governments, the federal government as well as the EU. We derive a sustainable time path of primary expenditures in East Germany and estimate the volume of investment expenditures that can be financed without violating fundamental sustainability restrictions. In addition, we inspect the fiscal federalism perspective of public investment taking into account the specific institutional settings in Germany.

This article reviews results from the literature on the political-economy determinants of infrastructure investments. I discuss three criteria which may be applied to describe efficiency, redistribution and equity concerns of governments when using infrastructure investments as a means of regional policy. Using the planned investment figures of highway construction in the German federal states, I demonstrate that these criteria often lead to conflicting priorities regarding infrastructure investment allocation across regions. Finally, I summarize the findings of previous studies on the political factors that influence infrastructure investment decisions.

This article argues that the European Union needs more competition in the market for corporate control and in the academic market. Evidence is presented of poor investment performance by Continental European companies relative to companies in Anglo-Saxon countries. The article claims that an important reason for this is that hostile takeovers are much easier to undertake in the Anglo-Saxon countries. Evidence is also presented regarding the underfunding and lack of competition among universities in Continental Europe relative to the United States. To improve the quality of Continental European universities they need to have more resources. These can be obtained by charging higher tuition fees for university education and through greater emphasis on alumni contributions. In addition, Continental Europe needs more competition among universities for both students and faculty. 140 C 2007 die Autoren Journal compilation C 2006 Verein