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How Effective Are Second-Generation Road Funds? A Preliminary Appraisal


  • Ken Gwilliam
  • Ajay Kumar


Underfunded, inefficient road maintenance is a perennial problem in many developing economies. To address it, some countries have created "second-generation" road funds that are financed by fuel levies and managed by boards representing the interests of road users. Macroeconomists often oppose such funds, arguing that this earmarking of revenue reduces fiscal flexibility. Some argue that such road funds should be seen as an interim step toward fully commercialized road maintenance or good public sector governance--and hence subject to sunset provisions. Decisions on whether to retain (or create) such funds should then be based on their effects on resource allocation, operational efficiency, and rent seeking. Using evidence on new road funds in Africa, this article finds that they have not undermined fiscal flexibility. Moreover, they have improved the administration of road funding (in terms of execution capability) and its outputs (in terms of road conditions). So, although criteria for assessing road funds remain relevant, the funds should not automatically be considered temporary mechanisms. But when establishing new funds, government's continued role in approving spending on road maintenance should be explicitly recognized. Copyright 2003, Oxford University Press.

Suggested Citation

  • Ken Gwilliam & Ajay Kumar, 2003. "How Effective Are Second-Generation Road Funds? A Preliminary Appraisal," World Bank Research Observer, World Bank Group, vol. 18(1), pages 113-128.
  • Handle: RePEc:oup:wbrobs:v:18:y:2003:i:1:p:113-128

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    References listed on IDEAS

    1. Datt, Gaurav & Ravallion, Martin, 1994. "Transfer Benefits from Public-Works Employment: Evidence for Rural India," Economic Journal, Royal Economic Society, vol. 104(427), pages 1346-1369, November.
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    4. Besley, T., 1988. "Workfare Vs. Welfare: Incentive Arguments For Work Requirements In Poverty Alleviation Programs," Papers 142, Princeton, Woodrow Wilson School - Public and International Affairs.
    5. K. Subbarao, 1997. "Public Works as an Anti-Poverty Program: An Overview of Cross-Country Experience," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 678-683.
    6. Radhakrishna, R. & Subbarao, K., 1997. "India's Public Distribution System. A National and International Perspective," World Bank - Discussion Papers 380, World Bank.
    7. Lipton, Michael & Ravallion, Martin, 1995. "Poverty and policy," Handbook of Development Economics,in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 3, chapter 41, pages 2551-2657 Elsevier.
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    Cited by:

    1. Yeti Nisha Madhoo & Shyam Nath, 2014. "Beneficiary charges: The Cinderella of subnational finance," Chapters,in: Taxation and Development: The Weakest Link?, chapter 11, pages 364-402 Edward Elgar Publishing.
    2. Raballand, Gael & Bridges, Kate & Beuran, Monica & Sacks, Audrey, 2013. "Does the semi-autonomous agency model function in a low-governance environment ? the case of the road development agency in Zambia," Policy Research Working Paper Series 6585, The World Bank.
    3. Dimitar Radev & Richard I Allen, 2006. "Managing and Controlling Extrabudgetary Funds," IMF Working Papers 06/286, International Monetary Fund.
    4. Richard M Bird & Joosung Jun, 2005. "Earmarking in Theory and Korean Practice," International Tax Program Papers 0513, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto.
    5. Yeti Nisha Madhoo & Shyam Nath, 2010. "Beneficiary Charges: The Cinderella of Subnational Finance," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1317, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.

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