Géraldine Mahieu, Philipp Pfeiffer, Janos Varga, Jan in 't Veld, 04 August 2021

Next Generation EU is an unprecedented tool that provides significant financial support for reforms and investment, resulting in a coordinated fiscal expansion across the EU. This column quantifies the effects of the additional investment expenditure for each member state by extending a standard macro model with a rich trade structure. The model suggests Next Generation EU investment can boost GDP by up to 1.5%, and that the effects are around one-third larger when explicitly accounting for the spillover effects from individual-country measures. A simple aggregation of the national effects of individual investment plans would thus substantially underestimate the growth effects of Next Generation EU.

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