A Framework for Efficient Government Investment

February 28, 2013

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Andrew M. Warner A Framework for Efficient Government Investment, (USA: International Monetary Fund, 2013) accessed November 21, 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

Welfare economics, scope and performance of government, externalities, public goods, cost-benefit analysis, subsidies economize on spending without losing effectiveness by modifying the conceptual framework guiding state expenditures. The familiar framework says that state intervention is justified when the spending provides public goods or when the intervention addresses externalities, provided the social return is above a threshold. This paper argues that another consideration needs to be brought into the mix - whether, in spite of the externalities, the private sector has an incentive to undertake the activity. It is argued that these two considerations together define a more efficient framework under which to justify state intervention. According to this modified framework, even a benign state interested in social welfare would not in fact address every externality nor necessarily select expenditures with the highest social returns. These points are summarized in a graph which is then used to analyze policy rules, subsidies and effective interaction between the state and the private sector. It is hoped that this paper points to the kind of information that needs to be collected and acted upon so that states may achieve their goals more effectively.

Subject: Economic sectors, Expenditure, National accounts, Private investment, Public investment spending, Public sector, Return on investment

Keywords: Cost-benefit analysis, Externalities, Externality, Firm, Global, Investing firm, Investment, Investment appraisal, Investment operation, Investment proposal, Market failure, Private investment, Private sector, Private sector incentive, Private sector investor, Public goods, Public investment spending, Public sector, Return, Return investment, Return on investment, Return profile, Scope and performance of government, State investment, Structure investment, Subsidies, Welfare economics, WP

Publication Details

Pages:

22
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/058
Stock No:

WPIEA2013058
ISBN:

9781475579147
ISSN:

1018-5941

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