Fiscal Rules, Public Investment, and Growth

Solvency is an intertemporal concept, relating to the present value of revenues and expenditures, and encompassing both assets and liabilities. But the standard practice among policy makers, financial market participants and international financial...

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Bibliographic Details
Main Author:	Servén, Luis
Format:	Policy Research Working Paper
Language:	English
Published:	World Bank, Washington, DC 2012
Subjects:	ACCOUNTING ACCRUAL ACCOUNTING ADVERSE CONSEQUENCES AGGREGATE DEMAND ASSET ACCUMULATION BALANCE SHEET BANK POLICY BIASES BORROWING REQUIREMENT BRIBES BUDGET BALANCE BUDGET CONSTRAINT BUDGET DEFICITS BUDGETARY ACCOUNTING BUDGETARY INSTITUTIONS CAPACITY ENHANCEMENTS CAPITAL ACCUMULATION CAPITAL ASSETS CAPITAL BUDGET CAPITAL EXPENDITURE CAPITAL FORMATION CAPITAL SPENDING CAPITAL STOCK CAPITAL STOCKS CASH BALANCE CASH DEFICIT CASH FLOW CASH FLOWS CHECKS CONTINGENT LIABILITIES CORPORATE FINANCE COST OF CAPITAL COST-BENEFIT ANALYSIS CURRENT ACCOUNT DEBT DEBT ACCUMULATION DEBT DEFAULT DEBT DYNAMICS DEBT FINANCE DEBT ISSUANCE DEBT ISSUE DEBT RATIO DEFAULT PREMIUM DEFICITS DEPRECIATION DERIVATIVE DEVELOPING COUNTRIES DISCOUNT RATE DISCOUNT RATES ECONOMIC DEVELOPMENT ECONOMIC GROWTH ECONOMIC POLICY EFFECTS OF CORRUPTION EFFICIENCY GAINS ENDOWMENTS EQUALITY EXPENDITURE EXPENDITURES FACE VALUE FINANCIAL MARKET FINANCIAL MARKET PARTICIPANTS FINANCIAL MARKETS FINANCIAL POLICY FINANCIAL RATE OF RETURN FINANCING NEEDS FISCAL ACCOUNTS FISCAL ADJUSTMENT FISCAL AGGREGATES FISCAL AUSTERITY FISCAL AUTHORITIES FISCAL CONSEQUENCES FISCAL DEFICIT FISCAL DISCIPLINE FISCAL MANAGEMENT FISCAL PERFORMANCE FISCAL POLICY FISCAL POLICY FRAMEWORK FISCAL PROJECTIONS FISCAL RETRENCHMENT FISCAL REVENUE FISCAL RULES FISCAL STABILITY FISCAL STRATEGIES FISCAL SUSTAINABILITY FISCAL TARGETS FISCAL TRANSPARENCY FUTURE CASH FLOWS FUTURE GROWTH FUTURE INCOME GOLDEN RULE GOVERNMENT BORROWING GOVERNMENT BUDGET GOVERNMENT BUDGETS GOVERNMENT DEFICIT GOVERNMENT EXPENDITURE GOVERNMENT EXPENDITURES GOVERNMENT GUARANTEES GOVERNMENT INDEBTEDNESS GOVERNMENT REVENUE GOVERNMENT SPENDING GROSS DEBT GROWTH MODEL GROWTH RATE HOLDING HUMAN CAPITAL INCOME DISTRIBUTION INCOME GROWTH INDEBTEDNESS INEQUALITY INFLATION INFRASTRUCTURE DEVELOPMENT INFRASTRUCTURE INVESTMENT INFRASTRUCTURE PROJECTS INITIAL DEBT INITIAL INVESTMENT INTEREST PAYMENTS INTEREST RATES INTERNATIONAL BANK INTERNATIONAL DEVELOPMENT INTERNATIONAL FINANCIAL INSTITUTIONS INVESTMENT EXPENDITURE INVESTMENT FLOWS INVESTMENT OPPORTUNITIES INVESTMENT PROJECTS INVESTMENT RATE INVESTMENT RISK INVESTMENT SPENDING LIQUIDITY LONG-RUN DEBT MACROECONOMIC EFFECTS MACROECONOMIC IMPACT MACROECONOMIC MODEL MACROECONOMIC STABILITY MARGINAL COST MARKET PRICE MEMBER COUNTRIES MONETARY FUND NATIONAL ACCOUNTS NEGATIVE VALUES NET INVESTMENT NET LENDING OPERATING COSTS OPPORTUNISTIC BEHAVIOR OPTIMAL CHOICE OUTPUT RATIO OUTSTANDING DEBT OUTSTANDING DEBT STOCK PENSIONS PERFORMANCE INDICATORS PHYSICAL ASSET POLITICAL ECONOMY PRESENT VALUE PRIVATE CAPITAL PRIVATE INVESTMENT PRIVATE INVESTORS PRIVATE SECTOR PRIVATIZATION PROGRAMS PUBLIC ASSETS PUBLIC CAPITAL PUBLIC CONSUMPTION PUBLIC DEBT PUBLIC DEBT STOCK PUBLIC DEFICIT PUBLIC DEFICITS PUBLIC ECONOMICS PUBLIC EXPENDITURE PUBLIC EXPENDITURES PUBLIC FINANCE PUBLIC FINANCES PUBLIC GOODS PUBLIC INFRASTRUCTURE PUBLIC INVESTMENT PUBLIC INVESTMENT PROGRAM PUBLIC PROCUREMENT PUBLIC REVENUE PUBLIC REVENUES PUBLIC SECTOR PUBLIC SECTOR BORROWING PUBLIC SECTOR NET WORTH PUBLIC SERVICE PUBLIC SERVICES PUBLIC SPENDING RATE OF RETURN RATES OF RETURN REAL GROWTH REAL GROWTH RATE REAL INTEREST REAL INTEREST RATE REAL INTEREST RATES RESEARCH ASSISTANCE RETURN RETURNS SANITATION SELF-FINANCING SERVICE PROVISION SOLVENCY STABILIZATION POLICIES STOCKS TAX TAX BASE TAX BASES TAX COLLECTION TAX POLICY TAX RATE TAX RATES TAX REVENUE TAX REVENUES TAX SYSTEM TAXPAYERS TELECOMMUNICATIONS TRANSACTION TRANSPARENCY TREASURY TYPES OF EXPENDITURES UNCERTAINTY UNION USER FEE USER FEES WAGES WELFARE LOSS
Online Access:	http://documents.worldbank.org/curated/en/2007/11/8665414/fiscal-rules-public-investment-growth http://hdl.handle.net/10986/7543

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Summary:	Solvency is an intertemporal concept, relating to the present value of revenues and expenditures, and encompassing both assets and liabilities. But the standard practice among policy makers, financial market participants and international financial institutions is to assess the strength of the fiscal accounts solely on the basis of the cash deficit. Short-term cash flows matter, but a preponderant focus on them can encourage governments to invest too little, especially during episodes of fiscal tightening. This has potentially adverse consequences for growth and, paradoxically, even for fiscal solvency itself. The paper offers an overview of the links between fiscal targets, public investment, and public sector solvency. After reviewing the international experience with public investment under fiscal adjustment, the paper lays out an analytical framework to illustrate the consequences of using the public deficit as a guide to solvency. The paper then discusses some alternatives to conventional cash deficit rules and their implications for investment and fiscal solvency.

Fiscal Rules, Public Investment, and Growth

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