Incentives for Public Investment under Fiscal Rules

The authors explore the relationship between fiscal rules and capital budgeting. The current budgetary approach to limit deficits to a fixed portion of GDP or to balance budgets could undermine incentives to invest in public capital with long-run returns since politicians concerned about electoral prospects would favor expenditures providing immediate benefits to their voters. An alternative budgetary approach is to separate capital from current revenues and expenditures and relax fiscal constraints by allowing governments to finance capital expenditures with debt, as suggested by the golden rule approach to capital funding. But the effect of capital budgeting would be to provide opportunities to politicians to escape the fiscal rule constraints by shifting current expenditures into capital accounts that are difficult to measure properly, thereby leading to increased borrowing. As an alternative, the authors propose a modified golden rule limiting debt finance to a proportion of the government's investment in self-liquidating assets.

Bibliographic Details

Main Authors:	Mintz, Jack M., Smart, Michael
Language:	English
Published:	World Bank, Washington, DC 2006-03
Subjects:	ACCOUNTING, ACCOUNTING STANDARDS, ASSETS, BENCHMARK, BOND ISSUES, BORROWING RULES, CAPITAL BUDGETING, CAPITAL COSTS, CAPITAL MARKETS, CAPITAL PROJECTS, CONSTANT RETURNS TO SCALE, CORPORATE FINANCE, COST OF CAPITAL, DEBT, DEBT FINANCING, DEFICITS, DEPRECIATION, ECONOMIC CRITERIA, ECONOMIC PERFORMANCE, ECONOMICS LITERATURE, ECONOMIES OF SCALE, ELASTICITY, ELECTRICITY, FINANCIAL REPORTING, FISCAL BALANCE, FISCAL DEFICITS, FISCAL POLICY, FORECASTS, GDP, GOVERNMENT DEBT, GOVERNMENT EXPENDITURES, GROWTH RATE, HOUSING, HUMAN CAPITAL, INTERNATIONAL INVESTORS, INVENTORY, INVESTMENT DECISIONS, INVESTMENT EXPENDITURES, INVESTMENT FUND, INVESTMENT PLANS, INVESTMENT PROJECTS, INVESTMENT RATE, INVESTMENT SPENDING, INVESTMENT STRATEGIES, LATIN AMERICAN, LICENSES, MARGINAL COST, MORAL HAZARD, NORMATIVE ECONOMICS, OPPORTUNITY COST, POLITICAL ECONOMY, PORTS, PRIVATE INVESTMENT, PRIVATE INVESTORS, PRIVATE SECTOR, PRIVATE SECTOR INVESTMENT, PRODUCTIVITY GROWTH, PROFITABILITY, PROVISIONS, PUBLIC, PUBLIC DEBT, PUBLIC EXPENDITURES, PUBLIC FINANCE, PUBLIC GOODS, PUBLIC INFRASTRUCTURE, PUBLIC INVESTMENT, PUBLIC INVESTMENTS, PUBLIC SECTOR, PUBLIC SECTOR ACCOUNTING, PUBLIC SECTOR BORROWING, PUBLIC SPENDING, PUBLIC TRANSPORT, RATE OF RETURN, RATES OF RETURN, REVENUE SOURCES, ROADS, SAVINGS, STATEMENTS, TAX, TAX RATE, TAX RATES, TAX REVENUES, TAXATION, TRANSPARENCY, UTILITIES, VALUATION, VOTERS, WEALTH,
Online Access:	http://documents.worldbank.org/curated/en/2006/03/6612736/incentives-public-investment-under-fiscal-rules https://hdl.handle.net/10986/8346
Tags:	Add Tag No Tags, Be the first to tag this record!