Investment Scaling-up and the Role of Government: the Case of Benin

March 27, 2015

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Matteo Ghilardi, and Sergio Sola. Investment Scaling-up and the Role of Government: the Case of Benin, (USA: International Monetary Fund, 2015) accessed December 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

This paper studies the fiscal implications for the Beninese economy of scaling up of public investment when the government is subject to inefficiencies on the spending and on the tax collection side. While scaling up of public investments results in higher long-run output and consumption levels, a fiscal stabilization package is required in order to preserve fiscal sustainability. A welfare analysis shows that consumers’ welfare is increased when the government smoothes the fiscal adjustment via higher borrowing. Moreover, the comparison between several stabilization packages highlights the fact that higher welfare is achieved when the government relies mostly on taxation of capital as this allows higher levels of consumption to materialize earlier. Lower fiscal costs can however be achieved if the government manages to reduce inefficiency in tax collection. Finally, we consider a change in the trade regime that causes a decline in revenues. We find that the higher fiscal burden required to preserve fiscal sustainability would completely wipe out the welfare gain of higher public investments.

Subject: Consumption, Expenditure, Fiscal consolidation, Fiscal policy, National accounts, Private investment, Public debt, Public investment and public-private partnerships (PPP), Public investment spending

Keywords: Capital share, Capital tax, Consumption, Consumption amount, Consumption value, Debt profile, Debt Sustainability, Fiscal consolidation, Fiscal Policy, GDP ratio, Government Inefficiencies, Infrastructure, Investment buildup, Private investment, Public Investment, Public investment spending, Scaling-up investment, Sub-Saharan Africa, Tax Adjusts, Utility function, West Africa, Windfall revenue, WP

Publication Details

Pages:

30
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/069
Stock No:

WPIEA2015069
ISBN:

9781484304549
ISSN:

1018-5941

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