Date Added: Jan 2011
This paper concentrates on the golden rule of public finance. It reviews the main advantages and disadvantages of the potential implementation of this rule in the European Union. Often the question of the productivity of public capital is at the heart of the rule's discussions. As this issue has mostly been investigated for the United States, the authors try to estimate the productivity of public capital using data on the current member states of the European Union. Working both with data on net capital stocks and gross capital formation, they come to the conclusion that there is a cointegrating relationship between capital and output and that this relationship is in most cases positive.