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As You sow so Shall You Reap

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Author Info

  • Antonio David
  • Luis-Felipe Zanna
  • Raphael A. Espinoza
  • Michal Andrle
  • Marshall Mills

Abstract

This paper presents an analysis of the public investment scaling-up strategy for Togo using a dynamic macroeconomic model that explicitly analyzes the links between public investment, economic growth, and debt sustainability. In the model, public capital is productive and complementary to private capital, generating positive medium and long-run effects to increases in public investment. The model application indicates that a very large increase in public investment would have positive macroeconomic effects in the long-run, but would require unrealistic increases in the tax burden to cover recurrent costs and ensure debt sustainability. More modest increases in public investment would require more feasible increases in the tax burden, particularly if the efficiency of tax collection is improved. The model simulations also emphasize the importance of improvements in the efficiency of public investment to reap welfare gains. However, even if the macroeconomic implications of public investment scaling-up can be favorable in the long-run under certain assumptions on rates of return and efficiency of investment, the transition period is challenging and exposes the country to increased risk of unsustainable debt dynamics. The model was also used to assess the growth projections underlying the standard Excel-based debt sustainability analysis for Togo.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/127.

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Length: 39
Date of creation: 01 May 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/127

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Keywords: Public investment; Debt sustainability; Developing countries; Economic growth; Economic models; Infrastructure; Tax burdens; external debt; external borrowing; public debt; investment spending; private investment; domestic debt; tax revenue; domestic borrowing; commercial borrowing; private capital; debt dynamics; external financing; concessional debt; commercial debt; debt management; rates of return; investment management; investment projects; external resources; debt sustainability analysis; debt service; debt policy; commercial creditors; debt relief; foreign debt; debt reduction; external public debt; public borrowing; public sector debt; risk premium; debt accumulation; debt service projections; external loans; central bank; investment policies; official creditors; debt management strategy; debt terms; investment expenditures; domestic public debt; current account; discounted value; public debt management; investment decisions; fiscal gap; investment plans; fixed capital; total external debt; stock of debt; return on investment; currency debt; debt management unit; international lending; gross fixed capital formation; current account deficit; productive capital;

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  1. Zac Mills & Annette Kyobe & Jim Brumby & Chris Papageorgiou & Era Dabla-Norris, 2011. "Investing in Public Investment," IMF Working Papers 11/37, International Monetary Fund.
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Cited by:
  1. Andrew Berg & Rafael Portillo & Edward F. Buffie & Catherine A. Pattillo & Luis-Felipe Zanna, 2012. "Public Investment, Growth, and Debt Sustainability," IMF Working Papers 12/144, International Monetary Fund.
  2. Salifou Issoufou & Edward F. Buffie & Mouhamadou Bamba Diop & Kalidou Thiaw, 2014. "Efficient Energy Investment and Fiscal Adjustment in Senegal," IMF Working Papers 14/44, International Monetary Fund.
  3. Cavalcanti, Carlos B. & Marrero, Gustavo A. & Le, Tuan Minh, 2014. "Measuring the impact of debt-financed public investment," Policy Research Working Paper Series 6766, The World Bank.
  4. Yibin Mu, 2012. "Striking an Appropriate Balance Among Public Investment, Growth, and Debt Sustainability in Cape Verde," IMF Working Papers 12/280, International Monetary Fund.

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