Walking Up the Down Escalator : Public Investment and Fiscal Stability

Fiscal adjustment becomes like walking up the down escalator when growth-promoting spending is cut so much as to lower growth and thus the present value of future tax revenues to a degree that more than offsets the improvement in the cash deficit. Although short-term cash flows matter, a preponderant 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 evade the action of cash flow targets, some have suggested excluding from their scope certain investments (such as those undertaken by public enterprises deemed commercial or financed by multilaterals). These stopgap remedies might sometimes help protect investment, 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, replacing the exclusive focus on liquidity and debt.

Bibliographic Details

Main Authors:	Easterly, William, Irwin, Timothy, Servén, Luis
Format:	Policy Research Working Paper biblioteca
Language:	English
Published:	World Bank, Washington, DC 2007-03
Subjects:	ACCOUNTING, ACCOUNTING STANDARDS, ACCRUAL ACCOUNTING, ADJUSTMENT PROGRAMS, AGGREGATE BUDGET, AGGREGATE DEMAND, ASSET VALUE, BRIBES, BUDGET ALLOCATION, BUDGET DEPARTMENT, BUDGET SURPLUS, BUDGETARY MANAGEMENT, BUDGETARY RESOURCES, BURDEN OF TAXATION, CAPITAL ACCUMULATION, CAPITAL EXPENDITURE, CAPITAL EXPENDITURES, CAPITAL NEEDS, CAPITAL STOCK, CASH DEFICIT, CASH FLOW, CASH FLOWS, COMPETITIVE MARKETS, COMPOSITION OF EXPENDITURES, CORPORATE GOVERNANCE, COST OF CAPITAL, COST RECOVERY, DEBT, DEBT CRISIS, DEBT DYNAMICS, DEFICIT FINANCE, DEFICIT FINANCING, DEFICITS, EDUCATION EXPENDITURES, EDUCATION SERVICES, ENTITLEMENTS, EXPECTED RETURNS, EXPENDITURE CUTS, EXPENDITURE ITEM, EXPENDITURES, FINANCIAL ASSETS, FINANCIAL MARKET, FINANCIAL REPORTING, FINANCIAL REPORTS, FISCAL ADJUSTMENT, FISCAL AGGREGATES, FISCAL AUSTERITY, FISCAL AUTHORITIES, FISCAL DEFICIT, FISCAL DISCIPLINE, FISCAL INSTITUTIONS, FISCAL PERFORMANCE, FISCAL POLICY, FISCAL POSITION, FISCAL PROJECTIONS, FISCAL RETRENCHMENT, FISCAL RULES, FISCAL STABILITY, FISCAL STANCE, FISCAL STIMULUS, FISCAL STRATEGIES, FISCAL STRATEGY, FISCAL TARGETS, FUNGIBILITY, GOVERNMENT SOLVENCY, GROSS DEBT, GROWTH OF PUBLIC SPENDING, GROWTH POTENTIAL, GROWTH RATES, HIGHER INTEREST, HIGHER INTEREST RATES, INDEPENDENT AUDITOR, INFRASTRUCTURE INVESTMENT, INFRASTRUCTURE PROJECTS, INFRASTRUCTURE SERVICES, INVESTMENT DECISIONS, INVESTMENT FLOWS, INVESTMENT PROJECTS, INVESTMENT RISK, LATIN AMERICAN, LEVEL OF INDEBTEDNESS, LIQUIDITY, MACROECONOMIC MODEL, MACROECONOMIC STABILITY, MACROECONOMIC STABILIZATION, MARGINAL COST, MARGINAL EXCESS, MARGINAL EXCESS BURDEN, MARKET VALUE, NET LENDING, NET WORTH, PERFORMANCE INDICATORS, PERFORMANCE TARGETS, POLITICIANS, POVERTY REDUCTION, PRESENT VALUE, PRIMARY DEFICIT, PRIVATE FIRMS, PRIVATE INVESTMENT, PRIVATE INVESTORS, PRIVATE SECTOR, PRIVATE SECTOR INVOLVEMENT, PRIVATE SECTOR PARTICIPATION, PROFITABILITY, PROGRAMS, PROVISION OF INFRASTRUCTURE, PUBLIC, PUBLIC CAPITAL, PUBLIC CONSUMPTION, PUBLIC DEBT, PUBLIC ENTERPRISES, PUBLIC ENTITIES, PUBLIC EXPENDITURE, PUBLIC EXPENDITURES, PUBLIC FINANCES, PUBLIC GOODS, PUBLIC INFRASTRUCTURE, PUBLIC INVESTMENT, PUBLIC INVESTMENT IN INFRASTRUCTURE, PUBLIC INVESTMENT PROGRAM, PUBLIC INVESTMENT SPENDING, PUBLIC INVESTMENTS, PUBLIC PROCUREMENT, PUBLIC REVENUES, PUBLIC SECTOR, PUBLIC SECTOR BORROWING, PUBLIC SECTOR BORROWING REQUIREMENT, PUBLIC SECTOR NET WORTH, PUBLIC SECTOR PROJECTS, PUBLIC SECTOR RETRENCHMENT, PUBLIC SECTOR SOLVENCY, PUBLIC SERVICES, PUBLIC SPENDING, REAL INTEREST RATE, RECURRENT EXPENDITURES, REVENUE COLLECTION, REVENUE INCREASES, RISK PREMIUM, ROADS, SOCIAL RETURN, SOCIAL RETURNS, SPENDING CUTS, SUB-SAHARAN AFRICA, TAX, TAX BASES, TAX COLLECTION, TAX RATE, TAX REVENUE, TAX REVENUES, TAXATION, TELECOMMUNICATIONS, TOTAL SPENDING, TRANSPARENCY, UNCERTAINTY, UTILITIES,
Online Access:	http://documents.worldbank.org/curated/en/2007/03/7435956/walking-up-down-escalator-public-investment-fiscal-stability http://hdl.handle.net/10986/7191
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