Public Investment, Growth, and Debt Sustainability : Putting Together the Pieces.
Title:
Public Investment, Growth, and Debt Sustainability : Putting Together the Pieces.
Author:
Berg, Andrew.
ISBN:
9781475577259
Personal Author:
Physical Description:
1 online resource (55 pages)
Series:
IMF Working Papers
Contents:
Cover -- Table of Contents -- I. Introduction -- II. The Model -- A. Firms -- A.1. Technology -- A.2. Factor Demands -- B. Consumers -- C. The Government -- C.1. Infrastructure, Public Investment and Efficiency -- C.2. Fiscal Adjustment and the Public Sector Budget Constraint -- D. Market-Clearing Conditions and External Debt Accumulation -- III. Calibration of the Model -- IV. The Long-Run Outcome -- A. Insights from a Simplified Model -- B. Numerical Solutions -- V. The Medium-Term Fiscal and Macroeconomic Adjustments under Different Financing Schemes -- A. Unconstrained Tax Adjustment -- A.1. The Base Case -- A.2. More Optimistic and Troublesome Scenarios -- A.3. Gradually Increasing Transfers, Efficiency, and the Collection Rate of User Fees -- B. Constrained Tax Adjustment Combined with External Commercial Borrowing -- B.1. Tax Smoothing and Private Demand Crowding Out -- B.2. Debt Blowups: Structural and Policy Conditions -- C. Constrained Tax Adjustment Combined with Domestic Borrowing -- VI. External Shocks and Risks -- VII. Concluding Remarks -- Tables -- Table 1. Base Case Calibration -- Table 2. Public Investment Scaling Up, Concessional Borrowing, and Grants -- Table 3. Long-run Effects of Scaling up Public Investment by 3 Percent of Initial GDP -- Figures -- Figure 1. The Long-run Outcome in the Simplified Model -- Figure 2. Base Case: Unconstrained Tax Adjustment -- Figure 3. Unconstrained Tax Adjustment: Optimistic and Troublesome Scenarios -- Figure 4. Unconstrained Tax Adjustment: The Size of the Scaling Up -- Figure 5. Unconstrained Tax Adjustment: Increasing Transfers -- Figure 6. Unconstrained Tax Adjustment versus Constrained Tax Adjustment with External Commercial Borrowing -- Figure 7. Constrained Tax Adjustment with External Commercial Borrowing: Varying the Structural and Policy Conditions.
Figure 8. Constrained Tax Adjustment: Domestic Borrowing versus External Commercial Borrowing -- Figure 9. External TOT Shocks: Shocks Persistence and Financing Schemes -- Figure 10. TFP and Risk Premium Shocks and Risks -- Appendix A. On Public Investment Efficiency, Rates of Return, and Growth -- References.
Abstract:
We develop a model to study the macroeconomic effects of public investment surges in low-income countries, making explicit: (i) the investment-growth linkages; (ii) public external and domestic debt accumulation; (iii) the fiscal policy reactions necessary to ensure debt-sustainability; and (iv) the macroeconomic adjustment required to ensure internal and external balance. Well-executed high-yielding public investment programs can substantially raise output and consumption and be self-financing in the long run. However, even if the long run looks good, transition problems can be formidable when concessional financing does not cover the full cost of the investment program. Covering the resulting gap with tax increases or spending cuts requires sharp macroeconomic adjustments, crowding out private investment and consumption and delaying the growth benefits of public investment. Covering the gap with domestic borrowing market is not helpful either: higher domestic rates increase the financing challenge and private investment and consumption are still crowded out. Supplementing with external commercial borrowing, on the other hand, can smooth these difficult adjustments, reconciling the scaling up with feasibility constraints on increases in tax rates. But the strategy may be also risky. With poor execution, sluggish fiscal policy reactions, or persistent negative exogenous shocks, this strategy can easily lead to unsustainable public debt dynamics. Front-loaded investment programs and weak structural conditions (such as low returns to public capital and poor execution of investments) make the fiscal adjustment more challenging and the risks greater.
Local Note:
Electronic reproduction. Ann Arbor, Michigan : ProQuest Ebook Central, 2017. Available via World Wide Web. Access may be limited to ProQuest Ebook Central affiliated libraries.
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Electronic Access:
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