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As You Sow So Shall You Reap: Public Investment Surges, Growth, and Debt Sustainability in Togo

Author/Editor: Andrle, Michal | David, Antonio | Espinoza, Raphael A. | Mills, Marshall | Zanna, Luis-Felipe
Authorized for Distribution: May 1, 2012
Electronic Access: Free Full Text (PDF file size is 1,692KB)
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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 presents an analysis of the public investment scaling-up strategy for Togo using a dynamic macroeconomic model that explicitly analyzes the links between public investment, economic growth, and debt sustainability. In the model, public capital is productive and complementary to private capital, generating positive medium and long-run effects to increases in public investment. The model application indicates that a very large increase in public investment would have positive macroeconomic effects in the long-run, but would require unrealistic increases in the tax burden to cover recurrent costs and ensure debt sustainability. More modest increases in public investment would require more feasible increases in the tax burden, particularly if the efficiency of tax collection is improved. The model simulations also emphasize the importance of improvements in the efficiency of public investment to reap welfare gains. However, even if the macroeconomic implications of public investment scaling-up can be favorable in the long-run under certain assumptions on rates of return and efficiency of investment, the transition period is challenging and exposes the country to increased risk of unsustainable debt dynamics. The model was also used to assess the growth projections underlying the standard Excel-based debt sustainability analysis for Togo.
 
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Series: Working Paper No. 12/127
Subject(s): Debt sustainability | Economic growth | Economic models | Fiscal policy | Infrastructure | Public investment | Tax burdens | Togo
Author's keyword(s): Public Investment | Debt Sustainability | Fiscal Policy | Developing Countries
 
English  
    Published:   May 1, 2012        
            Format:   Paper
    Stock No:   WPIEA2012127   Pages:   38
         
       
     
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