Are regional fiscal multipliers on EU structural and investment fund spending large? A reassessment of the evidence

The European Commission’s “NextGenerationEU” COVID-19 recovery package has underscored interest in the size of regional fiscal multipliers in Europe. While the objective of EU funds is generally the long-term transformation and growth of EU economies, several recent papers have estimated large short-term regional multipliers on historical EU structural and investment fund spending. This paper reevaluates the evidence by estimating relative regional short-term multipliers using recent data on EU fund spending at the subnational (NUTS2) level and a leave-one-out predicted disbursement schedule instrument. In contrast with much of the recent literature, we find little evidence of large relative GDP multipliers. While investment responds strongly to EU funds, often increasing euro for euro, we also find suggestive evidence of crowding out of other government consumption.