Public Infrastructure Financing: An International Perspective
AbstractGeneral government investment in infrastructure has fallen in recent years for most of the countries in this study, (information is not available to assess whether this is true for public investment more generally). Nevertheless, overall investment in infrastructure has remained fairly steady in recent years, although volatile in some countries. Total Australian investment in infrastructure has rebounded in recent years to just below 6 per cent of GDP in 2006-07. Sub-national governments undertook 76 per cent of public infrastructure investment, with government trading enterprises accounting for around half of this. With the global financial crisis, governments are looking to infrastructure investment as a way of stimulating the economy. But financing options have also been constrained by the crisis. Financing decisions are separate from the investment decision and can be made independently. Financing differs from public funding - the latter being the commitment of public revenue to meet any gap between the costs of infrastructure provision and the revenue from user charges. Funding decisions carry an opportunity cost and deadweight loss of raising taxes. Budget appropriations, financed on a pay-as-you-go basis or from public debt, remain the major form of financing for government investment in infrastructure (63 per cent in 2006-07). Specific-purpose bonds, where repayment is linked to the performance of the asset, are a major source of finance in the United States and Canada, but were phased out in the 1980s in Australia. Public-private partnerships (PPP), where the government contracts a private partner to variously finance, design, build and operate infrastructure assets for a fixed period, are growing in use. Used extensively in the United Kingdom, in Australia they made up 6 per cent of public investment in 2006-07 - higher in New South Wales and Victoria. Some approaches used to finance public infrastructure can improve efficiency and lower the life-time project cost through - better management of project risk by aligning incentives for risk management with the capacity to manage the risk; improvements in information, contract negotiation and management and other transaction activities that pay-off in better risk management and cost savings; bringing greater market or other scrutiny to bear on the investment, and imposing the costs on potential beneficiaries to better reveal their willingness to pay. The most efficient financing vehicle will depend on the nature of the investment, the degree of asymmetry of information, the potential for competition, and the skills of the government as negotiators and contract managers. The potential for governments to shift risk onto private partners may be limited, and any non-diversifiable risk assumed by the private sector will be reflected in their required rates of return. PPPs offer considerable potential to reduce project risk, but are costly to transact. If such transactions are off-budget, this may inhibit the scrutiny needed to ensure efficient investment. The views expressed in this paper are those of the staff involved and do not necessarily reflect those of the Productivity Commission.
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.
Bibliographic InfoPaper provided by Productivity Commission, Government of Australia in its series Staff Working Papers with number 0902.
Length: 302 pages.
Date of creation: Mar 2009
Date of revision:
Publication status: Published by the Productivity Commission, Australia.
public infrastructure; infrastructure financing; public-private partnerships; budget appropriations; specific-purpose bonds; risk management;
Find related papers by JEL classification:
- E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
- H4 - Public Economics - - Publicly Provided Goods
- H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
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.:
- Robin Boadway, 2001. "Inter-Governmental Fiscal Relations: The Facilitator of Fiscal Decentralization," Constitutional Political Economy, Springer, vol. 12(2), pages 93-121, June.
- Olivier Cadot & Lars-Hendrik Röller & Andreas Stephan, 2002.
"Contribution to Productivity or Pork Barrel? The Two Faces of Infrastructure Investment,"
CIG Working Papers
FS IV 02-09, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
- Cadot, Olivier & Roller, Lars-Hendrik & Stephan, Andreas, 2006. "Contribution to productivity or pork barrel? The two faces of infrastructure investment," Journal of Public Economics, Elsevier, vol. 90(6-7), pages 1133-1153, August.
- Olivier Cadot & Lars-Hendrik Röller & Andreas Stephan, 2004. "Contribution to Productivity or Pork Barrel?: The Two Faces of Infrastructure Investment," Discussion Papers of DIW Berlin 458, DIW Berlin, German Institute for Economic Research.
- Bitros, George C, 1976. "A Statistical Theory of Expenditures in Capital Maintenance and Repair," Journal of Political Economy, University of Chicago Press, vol. 84(5), pages 917-36, October.
- Brealey, R A & Cooper, I A & Habib, M A, 1997. "Investment Appraisal in the Public Sector," Oxford Review of Economic Policy, Oxford University Press, vol. 13(4), pages 12-28, Winter.
- Iris Claus & Arthur Grimes, 2003. "Asymmetric Information, Financial Intermediation and the Monetary Transmission Mechanism: A Critical Review," Treasury Working Paper Series 03/19, New Zealand Treasury.
- David Aschauer, 1988.
"Is public expenditure productive?,"
88-7, Federal Reserve Bank of Chicago.
- Christine Brown, 2005. "Financing Transport Infrastructure: For Whom the Road Tolls," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 38(4), pages 431-438, December.
- Diamond, Douglas-W, 2001. "Should Japanese Banks Be Recapitalized?," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 19(2), pages 1-19, May.
- Rob Ball & David King, 2006. "The Private Finance Initiative In Local Government," Economic Affairs, Wiley Blackwell, vol. 26(1), pages 36-40, 03.
- Besfamille, Martin, 2004. "Local public works and intergovernmental transfers under asymmetric information," Journal of Public Economics, Elsevier, vol. 88(1-2), pages 353-375, January.
- Bernoth, Kerstin & von Hagen, Jürgen & Schuknecht, Ludger, 2012.
"Sovereign risk premiums in the European government bond market,"
Journal of International Money and Finance,
Elsevier, vol. 31(5), pages 975-995.
- Bernoth, Kerstin & Hagen, Jürgen von & Schuknecht, Ludger, 2006. "Sovereign Risk Premiums in the European Government Bond Market," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 151, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- Bichsel, Robert, 2001. "Should Road Users Pay the Full Cost of Road Provision?," Journal of Urban Economics, Elsevier, vol. 50(2), pages 367-383, September.
- Jón R. Blöndal, 2003. "Accrual Accounting and Budgeting: Key Issues and Recent Developments," OECD Journal on Budgeting, OECD Publishing, vol. 3(1), pages 43-59.
- Maria A Albino-War & Raju Jan Singh & Ehtisham Ahmad, 2005. "Subnational Public Financial Management: Institutions and Macroeconomic Considerations," IMF Working Papers 05/108, International Monetary Fund.
- Buiter, Willem H, 2001.
"Notes on 'A Code for Fiscal Stability.',"
Oxford Economic Papers,
Oxford University Press, vol. 53(1), pages 1-19, January.
- Brennan, Michael J & Kraus, Alan, 1987. " Efficient Financing under Asymmetric Information," Journal of Finance, American Finance Association, vol. 42(5), pages 1225-43, December.
- Arrow, Kenneth J & Lind, Robert C, 1970. "Uncertainty and the Evaluation of Public Investment Decisions," American Economic Review, American Economic Association, vol. 60(3), pages 364-78, June.
- Eshien Chong & Freddy Huet & Stéphane Saussier & Faye Steiner, 2006. "Public-Private Partnerships and Prices: Evidence from Water Distribution in France," Review of Industrial Organization, Springer, vol. 29(1), pages 149-169, September.
- Elroy Dimson & Paul Marsh & Mike Staunton, 2003. "Global Evidence On The Equity Risk Premium," Journal of Applied Corporate Finance, Morgan Stanley, vol. 15(4), pages 27-38.
- Sophia Chong & Emily Poole, 2013. "Financing Infrastructure: A Spectrum of Country Approaches," RBA Bulletin, Reserve Bank of Australia, pages 65-76, September.
- Meunier, David & Quinet, Emile, 2010. "Tips and Pitfalls in PPP design," Research in Transportation Economics, Elsevier, vol. 30(1), pages 126-138.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (MAPS).
If references are entirely missing, you can add them using this form.