We study the macroeconomic effects of public and private investment in 17
OECD economies through a VAR analysis with annual data from 1960 to 2014. From
impulse response functions we find that public investment had a positive growth effect
in most countries, and a contractionary effect in Finland, UK, Sweden, Japan, and
Canada. Public investment led to private investment crowding o ut in Belgium, Ireland,
Finland, Canada, Sweden, the UK and crowding-in effects in the rest of the countries.
Private investment has a positive growth effect in all countries; crowds-out (crowds-in)
public investment in Belgium and Sweden (in the rest of the countries). The partial rates
of return of public and private investment are mostly positive. Our results are robust to
the ordering of private and public investment in the VAR.