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

Manuk Ghazanchyan, Ricardo Marto, Jiri Jonas and Kaitlyn Douglass

No 2017/010, 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: WP; real GDP; Public Investment; Growth; Debt Sustainability; Fiscal Policy; Revenue Collection; Cambodia; Sri Lanka; Vietnam; investment efficiency; investment program; infrastructure investment; gain parameter; investment profile; investment project; investment efficiency parameter; investment boom; efficiency improvement; investment strategy; investment scenario; investment decision; Public investment spending; Public investment and public-private partnerships (PPP); Tax collection; Asia and Pacific; Global; Southeast Asia; East Asia; Sub-Saharan Africa (search for similar items in EconPapers)
Pages: 36
Date: 2017-01-24
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Citations: View citations in EconPapers (4)

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