[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/4158.html
   My bibliography  Save this paper

Walking up the down escalator : public investment and fiscal stability

Author

Listed:
  • Easterly, William
  • Irwin, Timothy
  • Serven, Luis
Abstract
Fiscal adjustment becomes like walking up the down escalator when growth-promoting spending is cut so much as to lower growth and thus the present value of future tax revenues to a degree that more than offsets the improvement in the cash deficit. Although short-term cash flows matter, a preponderant focus on them encourages governments to invest too little. Cash flow targets also encourage governments to shift investment spending off budget, by seeking private investment in public projects-irrespective of its real fiscal or economic benefits. To evade the action of cash flow targets, some have suggested excluding from their scope certain investments (such as those undertaken by public enterprises deemed commercial or financed by multilaterals). These stopgap remedies might sometimes help protect investment, but they do not provide a satisfactory solution to the underlying problem. Governments can more effectively reduce the biases created by the focus on short-term cash flows by developing indicators of the long-term fiscal effects of their decisions, including accounting and economic measures of net worth, and where appropriate including such measures in fiscal targets or even fiscal rules, replacing the exclusive focus on liquidity and debt.

Suggested Citation

  • Easterly, William & Irwin, Timothy & Serven, Luis, 2007. "Walking up the down escalator : public investment and fiscal stability," Policy Research Working Paper Series 4158, The World Bank.
    • Handle: RePEc:wbk:wbrwps:4158
    as

    Download full text from publisher

    File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2007/03/06/000016406_20070306100250/Rendered/PDF/wps4158.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2013. "The Basic Public Finance Of Public–Private Partnerships," Journal of the European Economic Association, European Economic Association, vol. 11(1), pages 83-111, February.
    2. Suescun, Rodrigo, 2005. "Fiscal space for investment in infrastructure in Colombia," Policy Research Working Paper Series 3629, The World Bank.
    3. Fink, Carsten & Mattoo, Aaditya & Rathindran, Randeep, 2001. "Liberalizing basic telecommunications : the Asian experience," Policy Research Working Paper Series 2718, The World Bank.
    4. Willem H. Buiter & Clemens Grafe, 2004. "Patching up the Pact," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 12(1), pages 67-102, March.
    5. Easterly, William & Rebelo, Sergio, 1993. "Fiscal policy and economic growth: An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 417-458, December.
    6. Ferreira, Pedro Cavalcanti & Nascimento, Leandro Gonçalves do, 2005. "Welfare and growth effects of alternative fiscal rules for infrastructure investment in Brazil," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 604, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    7. Faye Steiner, 2003. "Regulation, industry structure and performance in the electricity supply industry," OECD Economic Studies, OECD Publishing, vol. 2001(1), pages 143-182.
    8. David McKenzie & Dilip Mookherjee, 2003. "The Distributive Impact of Privatization in Latin America: Evidence from Four Countries," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Spring 20), pages 161-234, January.
    9. J. Luis Guasch, 2004. "Granting and Renegotiating Infrastructure Concessions : Doing it Right," World Bank Publications - Books, The World Bank Group, number 15024.
    10. Jeffry M. Netter & William L. Megginson, 2001. "From State to Market: A Survey of Empirical Studies on Privatization," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 321-389, June.
    11. Ferreira, Pedro Cavalcanti & Araújo, Carlos Hamilton Vasconcelos, 2006. "On the economic and fiscal effects of infrastructure investment in Brazil," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 613, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    12. David M. Newbery & Michael G. Pollitt, 1997. "The Restructuring and Privatisation of Britain's CEGB—Was It Worth It?," Journal of Industrial Economics, Wiley Blackwell, vol. 45(3), pages 269-303, September.
    13. Rioja, Felix K., 2003. "Filling potholes: macroeconomic effects of maintenance versus new investments in public infrastructure," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 2281-2304, September.
    14. Ward Romp & Jakob De Haan, 2007. "Public Capital and Economic Growth: A Critical Survey," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 8(S1), pages 6-52, April.
    15. Felix K. Rioja, 2003. "The Penalties of Inefficient Infrastructure," Review of Development Economics, Wiley Blackwell, vol. 7(1), pages 127-137, February.
    16. Julie Tam, 2004. "Long-term public finance report: an analysis of fiscal sustainability," Money Macro and Finance (MMF) Research Group Conference 2003 98, Money Macro and Finance Research Group.
    17. Mintz, Jack M. & Smart, Michael, 2006. "Incentives for public investment under fiscal rules," Policy Research Working Paper Series 3860, The World Bank.
    18. William Easterly & Luis Servén, 2003. "The Limits of Stabilization : Infrastructure, Public Deficits, and Growth in Latin America," World Bank Publications - Books, The World Bank Group, number 14456.
    19. Winston, Clifford, 1993. "Economic Deregulation: Days of Reckoning for Microeconomists," Journal of Economic Literature, American Economic Association, vol. 31(3), pages 1263-1289, September.
    20. Kalaitzidakis, Pantelis & Kalyvitis, Sarantis, 2004. "On the macroeconomic implications of maintenance in public capital," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 695-712, March.
    21. Philip Keefer & Stephen Knack, 2007. "Boondoggles, Rent-Seeking, and Political Checks and Balances: Public Investment under Unaccountable Governments," The Review of Economics and Statistics, MIT Press, vol. 89(3), pages 566-572, August.
    22. Fontaine, Ernesto R, 1997. "Project Evaluation Training and Public Investment in Chile," American Economic Review, American Economic Association, vol. 87(2), pages 63-67, May.
    23. Li, Wei & Xu, Lixin Colin, 2004. "The Impact of Privatization and Competition in the Telecommunications Sector around the World," Journal of Law and Economics, University of Chicago Press, vol. 47(2), pages 395-430, October.
    24. Easterly, William, 1999. "When is fiscal adjustment an illusion?," Policy Research Working Paper Series 2109, The World Bank.
    25. William Easterly, 1999. "When is fiscal adjustment an illusion?," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 14(28), pages 56-86.
    26. Ros, Agustin J, 1999. "Does Ownership or Competition Matter? The Effects of Telecommunications Reform on Network Expansion and Efficiency," Journal of Regulatory Economics, Springer, vol. 15(1), pages 65-92, January.
    27. Scott J. Wallsten, 2001. "An Econometric Analysis of Telecom Competition, Privatization, and Regulation in Africa and Latin America," Journal of Industrial Economics, Wiley Blackwell, vol. 49(1), pages 1-19, March.
    28. Clive Harris, 2003. "Private Participation in Infrastructure in Developing Countries : Trends, Impacts, and Policy Lessons," World Bank Publications - Books, The World Bank Group, number 15124.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wang, Shu-Ling, 2021. "Fiscal stimulus in a high-debt economy? A DSGE analysis," Economic Modelling, Elsevier, vol. 98(C), pages 118-135.
    2. Mogues, Tewodaj & Yu, Bingxin & Fan, Shenggen & McBride, Linden, 2012. "The impacts of public investment in and for agriculture: synthesis of the existing evidence," ESA Working Papers 288994, Food and Agriculture Organization of the United Nations, Agricultural Development Economics Division (ESA).
    3. Timothy C. Irwin, 2015. "Defining The Government'S Debt And Deficit," Journal of Economic Surveys, Wiley Blackwell, vol. 29(4), pages 711-732, September.
    4. Hans Pitlik & Michael Klien & Stefan Schiman-Vukan, 2017. "Stabilitätskonforme Berücksichtigung nachhaltiger öffentlicher Investitionen," WIFO Studies, WIFO, number 60595, March.
    5. Bevan, David L., 2010. "Fiscal policy issues for Tanzania," LSE Research Online Documents on Economics 36380, London School of Economics and Political Science, LSE Library.
    6. Francesca Castellani & Marcelo Olarreaga & Ugo Panizza & Yue Zhou, 2018. "Investment Gaps in IDB Borrowing Countries," IHEID Working Papers 03-2018, Economics Section, The Graduate Institute of International Studies.
    7. Amat Adarov & Ugo Panizza, 2024. "Public Investment Quality and its Implications for Sovereign Risk and Debt Sustainability," IHEID Working Papers 12-2024, Economics Section, The Graduate Institute of International Studies.
    8. Calderon, Cesar & Serven, Luis, 2010. "Infrastructure in Latin America," Policy Research Working Paper Series 5317, The World Bank.
    9. Vlaicu, Razvan & Verhoeven, Marijn & Grigoli, Francesco & Mills, Zachary, 2014. "Multiyear budgets and fiscal performance: Panel data evidence," Journal of Public Economics, Elsevier, vol. 111(C), pages 79-95.
    10. Galindo, Arturo J. & Panizza, Ugo, 2018. "The cyclicality of international public sector borrowing in developing countries: Does the lender matter?," World Development, Elsevier, vol. 112(C), pages 119-135.
    11. Era Dabla-Norris & Jim Brumby & Annette Kyobe & Zac Mills & Chris Papageorgiou, 2012. "Investing in public investment: an index of public investment efficiency," Journal of Economic Growth, Springer, vol. 17(3), pages 235-266, September.
    12. Hans Pitlik, 2010. "Fiscal Governance and Government Investment in Europe since the 1990s," WIFO Working Papers 370, WIFO.
    13. Anzoategui, Diego, 2022. "Sovereign spreads and the effects of fiscal austerity," Journal of International Economics, Elsevier, vol. 139(C).
    14. Ernest Gnan & Ewald Nowotny & András Simor & Iain Begg & Andrew Bosomworth & Ugo Panizza & Elga Bartsch & Moritz Kraemer, 2013. "The Interaction of Political, Fiscal and Financial Stability: Lessons from the Crisis," SUERF Studies, SUERF - The European Money and Finance Forum, number 2013/1 edited by Ernest Gnan, May.
    15. Edward F. Buffie & Manoj Atolia, 2016. "Fiscal Adjustment and Inflation Targeting in Less Developed Countries," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(8), pages 1839-1875, December.
    16. International Monetary Fund, 2010. "Post-Crisis Fiscal Policy Priorities for the ASEAN-5," IMF Working Papers 2010/252, International Monetary Fund.
    17. Attinasi, Maria Grazia & Klemm, Alexander, 2016. "The growth impact of discretionary fiscal policy measures," Journal of Macroeconomics, Elsevier, vol. 49(C), pages 265-279.
    18. Jaime Bonet-Morón & Gerson Javier Pérez-Valbuena & Lucas Marín-Llanes, 2019. "Oil booms and subnational public investment: a case-study for Colombia," Documentos de Trabajo Sobre Economía Regional y Urbana 17701, Banco de la República, Economía Regional.
    19. Iyanatul Islam, 2018. "Fiscal Consolidation, Growth and Employment: International Evidence and Implications for India," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 61(1), pages 105-130, March.
    20. Chiara Del Bo & Massimo Florio & Silvia Vignetti & Emanuela Sirtori, 2011. "Additionality and regional development: are EU Structural Funds complements or substitutes of national Public Finance?," Working Papers 201101, CSIL Centre for Industrial Studies.
    21. Grigoli, Francesco & Mills, Zachary & Verhoeven, Marijn & Vlaicu, Razvan, 2012. "MTEFs and fiscal performance: panel data evidence," Policy Research Working Paper Series 6186, The World Bank.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Calderon, Cesar & Serven, Luis, 2010. "Infrastructure in Latin America," Policy Research Working Paper Series 5317, The World Bank.
    2. repec:idb:brikps:358 is not listed on IDEAS
    3. Ward Romp & Jakob De Haan, 2007. "Public Capital and Economic Growth: A Critical Survey," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 8(S1), pages 6-52, April.
    4. Stephane Straub, 2011. "Infrastructure and Development: A Critical Appraisal of the Macro-level Literature," Journal of Development Studies, Taylor & Francis Journals, vol. 47(5), pages 683-708.
    5. Vivien Foster & José Luis Guasch & Luis Andrés & Thomas Haven, 2008. "The Impact of Private Sector Participation in Infrastructure: Lights, Shadows, and the Road Ahead," IDB Publications (Books), Inter-American Development Bank, number 59818, February.
    6. Luis A. Andrés & J. Luis Guasch & Thomas Haven & Vivien Foster, 2008. "The Impact of Private Sector Participation in Infrastructure : Lights, Shadows, and the Road Ahead," World Bank Publications - Books, The World Bank Group, number 6545.
    7. Stephane Straub, 2008. "Infrastructure and Growth in Developing Countries: Recent Advances and Research Challenges," Edinburgh School of Economics Discussion Paper Series 179, Edinburgh School of Economics, University of Edinburgh.
    8. Estache, Antonio & Goicoechea, Ana & Trujillo, Lourdes, 2009. "Utilities reforms and corruption in developing countries," Utilities Policy, Elsevier, vol. 17(2), pages 191-202, June.
    9. Li, Yan & Lyons, Bruce, 2012. "Market structure, regulation and the speed of mobile network penetration," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 697-707.
    10. Riham Ahmed Ezzat, 2015. "Paving the way for better telecom performance: Evidence from the telecommunication sector in MENA countries," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01164199, HAL.
    11. Mansaray, Alhassan & Coleman, Simeon & Ataullah, Ali & Sirichand, Kavita, 2021. "Residual government ownership in public-private partnership projects," Journal of Government and Economics, Elsevier, vol. 4(C).
    12. Wallsten, Scott, 2002. "Does sequencing matter? regulation and privatization in telecommunications reforms," Policy Research Working Paper Series 2817, The World Bank.
    13. Oscar Afonso & Sara Monteiro & Maria Thompson, 2014. "Innovation Economy, Productive Public Expenditure and Economic Growth," Metroeconomica, Wiley Blackwell, vol. 65(4), pages 671-689, November.
    14. Riham Ahmed Ezzat, 2015. "Paving the way for better telecom performance: Evidence from the telecommunication sector in MENA countries," Post-Print halshs-01164199, HAL.
    15. Andreas Irmen & Johanna Kuehnel, 2009. "Productive Government Expenditure And Economic Growth," Journal of Economic Surveys, Wiley Blackwell, vol. 23(4), pages 692-733, September.
    16. Castelnovo, Paolo & Del Bo, Chiara F. & Florio, Massimo, 2019. "Quality of institutions and productivity of State-Invested Enterprises: International evidence from major telecom companies," European Journal of Political Economy, Elsevier, vol. 58(C), pages 102-117.
    17. Alberto Chong & Florencio de, 2003. "The Truth about Privatization in Latin America," Yale School of Management Working Papers ysm436, Yale School of Management.
    18. EZZAT Riham Ahmed, 2015. "Paving the Way for Better Telecom Performance: Evidence from the Telecommunication Sector in MENA Countries," Review of Network Economics, De Gruyter, vol. 14(3), pages 157-199, September.
    19. Ferreira, Pedro Cavalcanti & Pereira, Ricardo A. de castro, 2008. "Efeitos de Crescimento e Bem-estar da Lei de Parceria Público-Privada no Brasil," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 62(2), October.
    20. John Gibson & Felix Rioja, 2017. "Public Infrastructure Maintenance And The Distribution Of Wealth," Economic Inquiry, Western Economic Association International, vol. 55(1), pages 175-186, January.
    21. Yan Li & Bruce Lyons, 2011. "Three Private Firms and an Independent Regulator are Sufficient for Rapid Mobile Network Penetration," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2011-01, Centre for Competition Policy, University of East Anglia, Norwich, UK..

    More about this item

    Keywords

    Public Sector Expenditure Analysis&Management; Public Sector Economics&Finance; Investment and Investment Climate; Economic Stabilization; Fiscal Adjustment;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:4158. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Roula I. Yazigi (email available below). General contact details of provider: https://edirc.repec.org/data/dvewbus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.