Public-private partnerships and fiscal rules Do the adoption and strength of numerical fiscal rules in Europe encourage the use of public-private partnerships

Increasing public deficit and debt constitute a major problem in public finance. Fiscal rules attempt to constrain the incentives of politicians and policymakers to elude fiscal responsibility. However, previous research suggests that politicians and policymakers may circumvent the intent of fiscal rules by formally complying with them while maintaining high levels of public spending absent new revenue--namely through the use of public private partnerships (PPP). This is the case because PPP allow for off-budget public investment. Using panel data for countries in the European Union, this paper finds that the existence and strength of fiscal rules are significantly and positively correlated with the use of PPP, when controlling for a set of other potential determinants of the use of PPP as well as unobserved country characteristics. This suggests that when countries adopt or strengthen their fiscal rules, they rely more on PPP than otherwise, implying that governments use PPP to avoid the constraints on public investment imposed by those same fiscal rules.