Public Investment, Public Finance, and Growth: The Impact of Distortionary Taxation, Recurrent Costs, and Incomplete Appropriability

May 1, 2014

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Format: Chicago

Christopher S Adam, and David Bevan. Public Investment, Public Finance, and Growth: The Impact of Distortionary Taxation, Recurrent Costs, and Incomplete Appropriability, (USA: International Monetary Fund, 2014) accessed November 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Effective public investment requires governments to address the "recurrent cost problem" to ensure operations and maintenance (O&M) expenditures are sufficient to sustain the flow of productive public capital services to private factors of production. Building on the model of Buffie et al (2012), this paper explores the macroeconomic implications of this recurrent cost problem and its resolution in a context that recognizes that taxation is distortionary. The model is also used to examine stylized fiscal reforms including the replacement of a distortionary output tax with a uniform consumption tax and budgetary reforms that restore O&M expenditures to their efficient levels. These experiments are stylized but clearly demonstrate the material consequences of the tax and public expenditure structures for growth and debt sustainability in low-income countries.

Subject: Consumption, Consumption taxes, Expenditure, Fiscal policy, Public investment and public-private partnerships (PPP)

Keywords: Crowding in, Tax burden, Tax rate, WP

Publication Details

Pages:

43
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2014/073
Stock No:

WPEIA2014073
ISBN:

9781484364819
ISSN:

1018-5941

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