Walking up the Down Escalator: Public Investment and Fiscal Stability
AbstractWhen growth-promoting spending is cut so much that the present value of future government revenues falls by more than the immediate improvement in the cash deficit, fiscal adjustment becomes like walking up the down escalator. Although short-term cash flows matter, too tight a 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 deal with this problem, some observers have suggested excluding certain investments (such as those undertaken by public enterprises deemed commercial or financed by multilaterals) from cash-flow targets. These stopgap remedies may help protect some investments, 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. Copyright The Author 2008. Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / the world bank . All rights reserved. For permissions, please e-mail: firstname.lastname@example.org, Oxford University Press.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by World Bank Group in its journal The World Bank Research Observer.
Volume (Year): 23 (2008)
Issue (Month): 1 (January)
Contact details of provider:
Postal: Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK
Phone: (202) 477-1234
Fax: 01865 267 985
Web page: http://wbro.oxfordjournals.org/
More information through EDIRC
Other versions of this item:
- 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.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Clive Harris, 2003. "Private Participation in Infrastructure in Developing Countries : Trends, Impacts, and Policy Lessons," World Bank Publications, The World Bank, number 15124, March.
- 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.
- 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, 02.
- Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2007. "The Basic Public Finance of Public-Private Partnerships," Documentos de Trabajo 234, Centro de Economía Aplicada, Universidad de Chile.
- Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2007. "The Basic Public Finance of Public-Private Partnerships," Levine's Bibliography 843644000000000313, UCLA Department of Economics.
- Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2007. "The Basic Public Finance of Public-Private Partnerships," NBER Working Papers 13284, National Bureau of Economic Research, Inc.
- Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2007. "The Basic Public Finance of Public-Private Partnerships," Working Papers 957, Economic Growth Center, Yale University.
- Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2007. "The Basic Public Finance of Public-Private Partnerships," Documentos de Trabajo 235, Centro de Economía Aplicada, Universidad de Chile.
- Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2007. "The Basic Public Finance of Public-Private Partnerships," Cowles Foundation Discussion Papers 1618, Cowles Foundation for Research in Economics, Yale University, revised Jan 2011.
- Engel, Eduardo & Fischer, Ronald & Galetovic, Alexander, 2008. "The Basic Public Finance of Public-Private Partnerships," Working Papers 35, Yale University, Department of Economics.
- Felix K. Rioja, 2003. "The Penalties of Inefficient Infrastructure," Review of Development Economics, Wiley Blackwell, vol. 7(1), pages 127-137, February.
- William Easterly & Sergio Rebelo, 1994.
"Fiscal Policy and Economic Growth: An Empirical Investigation,"
NBER Working Papers
4499, National Bureau of Economic Research, Inc.
- 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.
- Easterly, William & Rebelo, Sérgio, 1994. "Fiscal Policy and Economic Growth: An Empirical Investigation," CEPR Discussion Papers 885, C.E.P.R. Discussion Papers.
- Ferreira, Pedro Cavalcanti Gomes & Nascimento, Leandro Gonçalves do, 2005. "Welfare and Growth Effects of Alternative Fiscal Rules for Infrastructure Investment in Brazil," Economics Working Papers (Ensaios Economicos da EPGE) 604, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
- J. Luis Guasch, 2004. "Granting and Renegotiating Infrastructure Concessions : Doing it Right," World Bank Publications, The World Bank, number 15024, March.
- Ferreira, Pedro Cavalcanti Gomes & Araújo, Carlos Hamilton Vasconcelos, 2006. "On the Economic and Fiscal Effects of Infrastructure Investment in Brazil," Economics Working Papers (Ensaios Economicos da EPGE) 613, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
- Newbery, David M & Pollitt, Michael G, 1997. "The Restructuring and Privatization of Britain's CEGB--Was It Worth It?," Journal of Industrial Economics, Wiley Blackwell, vol. 45(3), pages 269-303, September.
- Mintz, Jack M. & Smart, Michael, 2006. "Incentives for public investment under fiscal rules," Policy Research Working Paper Series 3860, The World Bank.
- Romp, Ward & de Haan, Jakob, 2005.
"Public capital and economic growth: a critical survey,"
2/2005, European Investment Bank, Economics Department.
- 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, 04.
- 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.
- William Easterly, 1999.
"When is fiscal adjustment an illusion?,"
CEPR & CES & MSH, vol. 14(28), pages 55-86, 04.
- David McKenzie & Dilip Mookherjee, 2003.
"The Distributive Impact of Privatization in Latin America: Evidence from Four Countries,"
Journal of LACEA Economia,
LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
- Dilip Mookherjee & David McKenzie, 2001. "The Distributive Impact of Privatization in Latin America: Evidence from Four Countries," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-128, Boston University - Department of Economics, revised 2002.
- Winston, Clifford, 1993. "Economic Deregulation: Days of Reckoning for Microeconomists," Journal of Economic Literature, American Economic Association, vol. 31(3), pages 1263-89, September.
- 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.
- 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.
- 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.
- Fink, Carsten & Mattoo, Aaditya & Rathindran, Randeep, 2001.
"Liberalizing basic telecommunications : the Asian experience,"
Policy Research Working Paper Series
2718, The World Bank.
- Fink, Carsten & Mattoo, Aaditya & Rathindran, Randeep, 2002. "Liberalizing basic telecommunications : the Asian experience," HWWA Discussion Papers 163, Hamburg Institute of International Economics (HWWA).
- 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.
- Suescun, Rodrigo, 2005. "Fiscal space for investment in infrastructure in Colombia," Policy Research Working Paper Series 3629, The World Bank.
- Faye Steiner, 2001. "Regulation, industry structure and performance in the electricity supply industry," OECD Economic Studies, OECD Publishing, vol. 2001(1), pages 143-182.
- Wallsten, Scott J, 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.
- Calderon, Cesar & Serven, Luis, 2010. "Infrastructure in Latin America," Policy Research Working Paper Series 5317, The World Bank.
- 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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) or (Christopher F. Baum).
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.