Budgeting for Public Investment

When budgeting for public investment, governments must be able to persuade the public and the financial markets of the future benefits

Investments, in research or infrastructure for example, may be economically justifiable in terms of enabling future growth ( or as a stimulus to reduce unemployment during an economic downturn (  For each project, though, politicians also need to gain political support, which partly depends upon their ability to explain the economic case and partly upon it being seen to have wider benefits.

Financial markets must be persuaded that a government’s plans are sound – that debts will be repaid (  When considering government credibility, the economy is considered as a whole – so budgeting for public investment must be seen as being responsible in total, rather having to justify each individual project.  Markets rely upon forecasts by the Office for Budget Responsibility (OBR) in the UK and OECD forecasts globally.

Public acceptance of a government’s plans depends on the context:

●  A government that succeeds in growing the economy will be popular, so politicians can justify some investments.  There was bipartisan support when US lawmakers approve[d] $1tn in infrastructure spending.

●  A few projects can be included on the basis of improved quality of life, even if the financial return on investment is meagre or difficult to prove.  One example was described in the BBC article, High hopes in Margate for Turner Contemporary art gallery boost:

“hopes are high that it will do for the town what Frank Gehry’s Guggenheim Museum has done for the fortunes of Bilbao in Northern Spain.

…The development of the Sage music venue and Baltic Centre for Contemporary Art in Gateshead have shown that unique cultural projects like these can not only boost visitors to an area but also help create environmental, economic and social benefits.”

●  In recent years budgeting for public investment is also assessed as to whether it adequately supports a government’s environmental commitments, as discussed later (6.7.5).  Investment in renewable energy supplies has become more popular since the “the invasion of Ukraine has produced an unprecedented increase in energy prices, especially in Europe”, according to CEPR.  There is “Clear public support for more renewables” in the UK, for example.



This page is intended to form part of Edition 4 of the Patterns of Power series of books.  An archived copy of it is held at https://www.patternsofpower.org/edition04/6714a.htm.