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Collect More, Spend Better; Public Investment in Asian Frontier Markets

Manuk Ghazanchyan (), Ricardo Marto, Jiri Jonas and Kaitlyn Douglass

No 17/10, IMF Working Papers from International Monetary Fund

Abstract: We use a dynamic small open economy model to explore the macroeconomic impact of alternative public investment scaling-up scenarios, analyzing how improving the efficiency of capital spending and of tax revenue collection affect growth and debt sustainability for three fast-growing Southeast Asian economies: Cambodia, Sri Lanka, and Vietnam. We show that a gradual public investment profile is more favorable than front-loading capital spending because we assume governments are able to gradually learn how to invest more efficiently, accelerating public capital accumulation and therefore growth. We discuss the pros and cons of alternative financing options and identify the financing mix that generates the best macroeconomic outcome. Sometimes overlooked, improving the efficiency of revenue collection over time may ease the burden of fiscal adjustment, achieving higher GDP growth with substantially lower debt-to-GDP ratios, and will help policymakers efficiently meet the challenge of addressing large infrastructure gaps while maintaining debt sustainability.

Keywords: Southeast Asia; Sri Lanka; Tax collection; Vietnam; Capital expenditure; Public investment; Fiscal policy; Emerging markets; Cambodia; Debt sustainability; Asia and Pacific; Growth, Revenue Collection, International Lending and Debt Problems, General, Infrastructures, Fiscal and Monetary Policy in Development (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-sea
Date: 2017-01-24
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