Fiscal sustainability, public expense and economic growth

There are many investment opportunities in a society that are not taken advantage because their benefits cannot be appropriated by the private sector, but which could generate positive externalities of undoubted benefit to society. Therefore, it is a matter of creating public-private schemes that guarantee the appropriateness of these externalities by private agents, and which therefore trigger virtuous circles of economic growth that are beneficial to society. In this sense, this work evaluates an infrastructure construction program through public-private partnerships, using a Dynamic Computable Recursive General Equilibrium Model, which explains in detail the functioning of the Colombian economy. The model considers formal and informal markets, monopolistic competition, and includes heterogeneous companies, using a Melitz type model The emphasis of the modeling is on 3 aspects: 1) short-term effects associated with the impact of investment in roads on the level of economic activity; 2) the inclusion of externalities in production functions, to capture supply and productivity effects; and 3) the careful and detailed modeling of public debt, including endogenous revenues that reflect productive activity, the financial costs of borrowing and the payment of investment through future budgetary commitments. The results of a base scenario, which projects the Colombian economy over a 20-year horizon, are compared with an alternative scenario that simulates the effect of investing 73.5 trillion Colombian pesos in 2017 over 9 years. In the alternative, the program of execution of the works is adjusted so that they are carried out between the years 2020 and 2028 and paid in full on the projection horizon (2018-2037). All possible effects are incorporated into the projection horizon, extinguishing the commitments acquired by the government with the program, and thus closing the investment-payment cycle in the horizon used.