In an environment of accommodative monetary policy, public investments have the strongest shortterm demand effects, including in terms of cross-country spillovers.1 Moreover, in times of elevated uncertainty, public investment raises confidence and thus tends to have a higher fiscal multiplier.2 By raising confidence, a push in public investment is also likely to foster investment from private stakeholders.
At the same time, we should not forget that the longer-term positive effects on the economy’s potential output and the impact on public finances crucially depend on the effectiveness of investment and the productivity of public capital.