Incentives for Public Investment under Fiscal Rules

The authors explore the relationship between fiscal rules and capital budgeting. The current budgetary approach to limit deficits to a fixed portion of GDP or to balance budgets could undermine incentives to invest in public capital with long-run returns since politicians concerned about electoral p...

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Main Authors:	Mintz, Jack M., Smart, Michael
Format:	Policy Research Working Paper
Language:	English
Published:	World Bank, Washington, DC 2012
Subjects:	ACCOUNTING ACCOUNTING STANDARDS ASSETS BENCHMARK BOND ISSUES BORROWING RULES CAPITAL BUDGETING CAPITAL COSTS CAPITAL MARKETS CAPITAL PROJECTS CONSTANT RETURNS TO SCALE CORPORATE FINANCE COST OF CAPITAL DEBT DEBT FINANCING DEFICITS DEPRECIATION ECONOMIC CRITERIA ECONOMIC PERFORMANCE ECONOMICS LITERATURE ECONOMIES OF SCALE ELASTICITY ELECTRICITY FINANCIAL REPORTING FISCAL BALANCE FISCAL DEFICITS FISCAL POLICY FORECASTS GDP GOVERNMENT DEBT GOVERNMENT EXPENDITURES GROWTH RATE HOUSING HUMAN CAPITAL INTERNATIONAL INVESTORS INVENTORY INVESTMENT DECISIONS INVESTMENT EXPENDITURES INVESTMENT FUND INVESTMENT PLANS INVESTMENT PROJECTS INVESTMENT RATE INVESTMENT SPENDING INVESTMENT STRATEGIES LATIN AMERICAN LICENSES MARGINAL COST MORAL HAZARD NORMATIVE ECONOMICS OPPORTUNITY COST POLITICAL ECONOMY PORTS PRIVATE INVESTMENT PRIVATE INVESTORS PRIVATE SECTOR PRIVATE SECTOR INVESTMENT PRODUCTIVITY GROWTH PROFITABILITY PROVISIONS PUBLIC PUBLIC DEBT PUBLIC EXPENDITURES PUBLIC FINANCE PUBLIC GOODS PUBLIC INFRASTRUCTURE PUBLIC INVESTMENT PUBLIC INVESTMENTS PUBLIC SECTOR PUBLIC SECTOR ACCOUNTING PUBLIC SECTOR BORROWING PUBLIC SPENDING PUBLIC TRANSPORT RATE OF RETURN RATES OF RETURN REVENUE SOURCES ROADS SAVINGS STATEMENTS TAX TAX RATE TAX RATES TAX REVENUES TAXATION TRANSPARENCY UTILITIES VALUATION VOTERS WEALTH
Online Access:	http://documents.worldbank.org/curated/en/2006/03/6612736/incentives-public-investment-under-fiscal-rules http://hdl.handle.net/10986/8346

id	okr-10986-8346
recordtype	oai_dc
spelling	okr-10986-83462021-04-23T14:02:40Z Incentives for Public Investment under Fiscal Rules Mintz, Jack M. Smart, Michael ACCOUNTING ACCOUNTING STANDARDS ASSETS BENCHMARK BOND ISSUES BORROWING RULES CAPITAL BUDGETING CAPITAL COSTS CAPITAL MARKETS CAPITAL PROJECTS CONSTANT RETURNS TO SCALE CORPORATE FINANCE COST OF CAPITAL DEBT DEBT FINANCING DEFICITS DEPRECIATION ECONOMIC CRITERIA ECONOMIC PERFORMANCE ECONOMICS LITERATURE ECONOMIES OF SCALE ELASTICITY ELECTRICITY FINANCIAL REPORTING FISCAL BALANCE FISCAL DEFICITS FISCAL POLICY FORECASTS GDP GOVERNMENT DEBT GOVERNMENT EXPENDITURES GROWTH RATE HOUSING HUMAN CAPITAL INTERNATIONAL INVESTORS INVENTORY INVESTMENT DECISIONS INVESTMENT EXPENDITURES INVESTMENT FUND INVESTMENT PLANS INVESTMENT PROJECTS INVESTMENT RATE INVESTMENT SPENDING INVESTMENT STRATEGIES LATIN AMERICAN LICENSES MARGINAL COST MORAL HAZARD NORMATIVE ECONOMICS OPPORTUNITY COST POLITICAL ECONOMY PORTS PRIVATE INVESTMENT PRIVATE INVESTORS PRIVATE SECTOR PRIVATE SECTOR INVESTMENT PRODUCTIVITY GROWTH PROFITABILITY PROVISIONS PUBLIC PUBLIC DEBT PUBLIC EXPENDITURES PUBLIC FINANCE PUBLIC GOODS PUBLIC INFRASTRUCTURE PUBLIC INVESTMENT PUBLIC INVESTMENTS PUBLIC SECTOR PUBLIC SECTOR ACCOUNTING PUBLIC SECTOR BORROWING PUBLIC SPENDING PUBLIC TRANSPORT RATE OF RETURN RATES OF RETURN REVENUE SOURCES ROADS SAVINGS STATEMENTS TAX TAX RATE TAX RATES TAX REVENUES TAXATION TRANSPARENCY UTILITIES VALUATION VOTERS WEALTH The authors explore the relationship between fiscal rules and capital budgeting. The current budgetary approach to limit deficits to a fixed portion of GDP or to balance budgets could undermine incentives to invest in public capital with long-run returns since politicians concerned about electoral prospects would favor expenditures providing immediate benefits to their voters. An alternative budgetary approach is to separate capital from current revenues and expenditures and relax fiscal constraints by allowing governments to finance capital expenditures with debt, as suggested by the golden rule approach to capital funding. But the effect of capital budgeting would be to provide opportunities to politicians to escape the fiscal rule constraints by shifting current expenditures into capital accounts that are difficult to measure properly, thereby leading to increased borrowing. As an alternative, the authors propose a modified golden rule limiting debt finance to a proportion of the government's investment in self-liquidating assets. 2012-06-18T20:23:59Z 2012-06-18T20:23:59Z 2006-03 http://documents.worldbank.org/curated/en/2006/03/6612736/incentives-public-investment-under-fiscal-rules http://hdl.handle.net/10986/8346 English Policy Research Working Paper; No. 3860 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	ACCOUNTING ACCOUNTING STANDARDS ASSETS BENCHMARK BOND ISSUES BORROWING RULES CAPITAL BUDGETING CAPITAL COSTS CAPITAL MARKETS CAPITAL PROJECTS CONSTANT RETURNS TO SCALE CORPORATE FINANCE COST OF CAPITAL DEBT DEBT FINANCING DEFICITS DEPRECIATION ECONOMIC CRITERIA ECONOMIC PERFORMANCE ECONOMICS LITERATURE ECONOMIES OF SCALE ELASTICITY ELECTRICITY FINANCIAL REPORTING FISCAL BALANCE FISCAL DEFICITS FISCAL POLICY FORECASTS GDP GOVERNMENT DEBT GOVERNMENT EXPENDITURES GROWTH RATE HOUSING HUMAN CAPITAL INTERNATIONAL INVESTORS INVENTORY INVESTMENT DECISIONS INVESTMENT EXPENDITURES INVESTMENT FUND INVESTMENT PLANS INVESTMENT PROJECTS INVESTMENT RATE INVESTMENT SPENDING INVESTMENT STRATEGIES LATIN AMERICAN LICENSES MARGINAL COST MORAL HAZARD NORMATIVE ECONOMICS OPPORTUNITY COST POLITICAL ECONOMY PORTS PRIVATE INVESTMENT PRIVATE INVESTORS PRIVATE SECTOR PRIVATE SECTOR INVESTMENT PRODUCTIVITY GROWTH PROFITABILITY PROVISIONS PUBLIC PUBLIC DEBT PUBLIC EXPENDITURES PUBLIC FINANCE PUBLIC GOODS PUBLIC INFRASTRUCTURE PUBLIC INVESTMENT PUBLIC INVESTMENTS PUBLIC SECTOR PUBLIC SECTOR ACCOUNTING PUBLIC SECTOR BORROWING PUBLIC SPENDING PUBLIC TRANSPORT RATE OF RETURN RATES OF RETURN REVENUE SOURCES ROADS SAVINGS STATEMENTS TAX TAX RATE TAX RATES TAX REVENUES TAXATION TRANSPARENCY UTILITIES VALUATION VOTERS WEALTH
spellingShingle	ACCOUNTING ACCOUNTING STANDARDS ASSETS BENCHMARK BOND ISSUES BORROWING RULES CAPITAL BUDGETING CAPITAL COSTS CAPITAL MARKETS CAPITAL PROJECTS CONSTANT RETURNS TO SCALE CORPORATE FINANCE COST OF CAPITAL DEBT DEBT FINANCING DEFICITS DEPRECIATION ECONOMIC CRITERIA ECONOMIC PERFORMANCE ECONOMICS LITERATURE ECONOMIES OF SCALE ELASTICITY ELECTRICITY FINANCIAL REPORTING FISCAL BALANCE FISCAL DEFICITS FISCAL POLICY FORECASTS GDP GOVERNMENT DEBT GOVERNMENT EXPENDITURES GROWTH RATE HOUSING HUMAN CAPITAL INTERNATIONAL INVESTORS INVENTORY INVESTMENT DECISIONS INVESTMENT EXPENDITURES INVESTMENT FUND INVESTMENT PLANS INVESTMENT PROJECTS INVESTMENT RATE INVESTMENT SPENDING INVESTMENT STRATEGIES LATIN AMERICAN LICENSES MARGINAL COST MORAL HAZARD NORMATIVE ECONOMICS OPPORTUNITY COST POLITICAL ECONOMY PORTS PRIVATE INVESTMENT PRIVATE INVESTORS PRIVATE SECTOR PRIVATE SECTOR INVESTMENT PRODUCTIVITY GROWTH PROFITABILITY PROVISIONS PUBLIC PUBLIC DEBT PUBLIC EXPENDITURES PUBLIC FINANCE PUBLIC GOODS PUBLIC INFRASTRUCTURE PUBLIC INVESTMENT PUBLIC INVESTMENTS PUBLIC SECTOR PUBLIC SECTOR ACCOUNTING PUBLIC SECTOR BORROWING PUBLIC SPENDING PUBLIC TRANSPORT RATE OF RETURN RATES OF RETURN REVENUE SOURCES ROADS SAVINGS STATEMENTS TAX TAX RATE TAX RATES TAX REVENUES TAXATION TRANSPARENCY UTILITIES VALUATION VOTERS WEALTH Mintz, Jack M. Smart, Michael Incentives for Public Investment under Fiscal Rules
relation	Policy Research Working Paper; No. 3860
description	The authors explore the relationship between fiscal rules and capital budgeting. The current budgetary approach to limit deficits to a fixed portion of GDP or to balance budgets could undermine incentives to invest in public capital with long-run returns since politicians concerned about electoral prospects would favor expenditures providing immediate benefits to their voters. An alternative budgetary approach is to separate capital from current revenues and expenditures and relax fiscal constraints by allowing governments to finance capital expenditures with debt, as suggested by the golden rule approach to capital funding. But the effect of capital budgeting would be to provide opportunities to politicians to escape the fiscal rule constraints by shifting current expenditures into capital accounts that are difficult to measure properly, thereby leading to increased borrowing. As an alternative, the authors propose a modified golden rule limiting debt finance to a proportion of the government's investment in self-liquidating assets.
format	Publications & Research :: Policy Research Working Paper
author	Mintz, Jack M. Smart, Michael
author_facet	Mintz, Jack M. Smart, Michael
author_sort	Mintz, Jack M.
title	Incentives for Public Investment under Fiscal Rules
title_short	Incentives for Public Investment under Fiscal Rules
title_full	Incentives for Public Investment under Fiscal Rules
title_fullStr	Incentives for Public Investment under Fiscal Rules
title_full_unstemmed	Incentives for Public Investment under Fiscal Rules
title_sort	incentives for public investment under fiscal rules
publisher	World Bank, Washington, DC
publishDate	2012
url	http://documents.worldbank.org/curated/en/2006/03/6612736/incentives-public-investment-under-fiscal-rules http://hdl.handle.net/10986/8346
_version_	1764405830552125440

Incentives for Public Investment under Fiscal Rules

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