{
  "title": "Investing in Public Infrastructure: Roads or Schools?",
  "publication": "IMF Working Papers, May 4, 2017",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2017/05/04/investing-in-public-infrastructure-roads-or-schools-44865",
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  "summary": "Why do governments in developing economies invest in roads and not enough in schools? In the presence of distortionary taxation and debt aversion, the different pace at which roads and schools contribute to economic growth turns out to be central to this decision.",
  "sections": [
    {
      "heading": "Summary",
      "content": "- Governments in developing economies tend to invest more in roads than in schools.\n- Distortionary taxation and debt aversion shape public investment composition because roads and schools yield growth benefits at different paces: costs are front-loaded for both, but the growth benefits of schools accrue with a delay.\n- With a “big push,” even assuming a large \"15 percent\" return differential in favor of schools, the government would still limit the fraction of the investment scale-up going to schools to about a half.\n- Political myopia is a crucial determinant of public investment composition; a “big push,” by accelerating growth outcomes, mitigates myopia but increases risks to fiscal and debt sustainability.\n- Tied concessional financing and grants can potentially mitigate adverse effects of both debt aversion and political myopia."
    },
    {
      "heading": "Key findings and quantitative points",
      "content": "- Costs of both roads and schools are front-loaded.\n- Growth benefits:\n  - Schools: benefits accrue with a delay.\n  - Roads: benefits materialize more quickly (implied contrast; source emphasizes pace difference).\n- Return differential example:\n  - A “big push” scenario with a \"15 percent\" return differential in favor of schools still results in the government allocating about a half of the investment scale-up to schools.\n- Political economy:\n  - Political myopia reduces the share of long‑lag investments (schools) in public investment portfolios.\n  - Acceleration of growth outcomes under a “big push” reduces myopia but exacerbates fiscal and debt sustainability risks."
    },
    {
      "heading": "Determinants of investment composition",
      "content": "- Distortionary taxation: affects optimal financing and composition of public investment.\n- Debt aversion: limits willingness to borrow to finance front‑loaded costs, biasing toward faster-return investments.\n- Political myopia: short electoral horizons or short-term policy incentives favor investments with quicker payoffs.\n- Financing modalities:\n  - Tied concessional financing and grants: identified as mechanisms that can alleviate constraints from debt aversion and political myopia."
    },
    {
      "heading": "Policy implications and recommendations",
      "content": "- Consider targeted concessional financing or grants to support higher shares of delayed-return investments (schools) without worsening debt sustainability.\n- Weigh the trade-off between accelerating growth through a “big push” and elevated fiscal and debt sustainability risks.\n- Account for political myopia in designing public investment programs; policies that lengthen political horizons or insulate investment decisions may increase allocations to human capital investments with delayed returns.\n\nSource: Investing in Public Infrastructure: Roads or Schools?, IMF Working Paper No. 2017/105\n\n---\n\n Content in this bundle\n\n- Investing in Public Infrastructure: Roads or Schools?, WP/17/105, May 2017\n  - Investing in Public Infrastructure: Roads or Schools?, WP/17/105, May 2017 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Investing in Public Infrastructure: Roads or Schools?, WP/17/105, May 2017 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2017/05/04/investing-in-public-infrastructure-roads-or-schools-44865"
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    "Authors: Manoj Atolia, Grace B Li, Ricardo Marto, Giovanni Melina",
    "Published: May 4, 2017",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781475595932.001",
    "Governments in developing economies tend to invest more in roads than in schools.",
    "Distortionary taxation and debt aversion shape public investment composition because roads and schools yield growth benefits at different paces: costs are front-loaded for both, but the growth benefits of schools accrue with a delay.",
    "With a “big push,” even assuming a large \"15 percent\" return differential in favor of schools, the government would still limit the fraction of the investment scale-up going to schools to about a half.",
    "Political myopia is a crucial determinant of public investment composition; a “big push,” by accelerating growth outcomes, mitigates myopia but increases risks to fiscal and debt sustainability.",
    "Tied concessional financing and grants can potentially mitigate adverse effects of both debt aversion and political myopia.",
    "Costs of both roads and schools are front-loaded.",
    "Growth benefits:",
    "Return differential example:",
    "Political economy:",
    "Distortionary taxation: affects optimal financing and composition of public investment.",
    "Debt aversion: limits willingness to borrow to finance front‑loaded costs, biasing toward faster-return investments.",
    "Political myopia: short electoral horizons or short-term policy incentives favor investments with quicker payoffs.",
    "Financing modalities:",
    "Consider targeted concessional financing or grants to support higher shares of delayed-return investments (schools) without worsening debt sustainability.",
    "Weigh the trade-off between accelerating growth through a “big push” and elevated fiscal and debt sustainability risks.",
    "Account for political myopia in designing public investment programs; policies that lengthen political horizons or insulate investment decisions may increase allocations to human capital investments with delayed returns.",
    "**Investing in Public Infrastructure: Roads or Schools?, WP/17/105, May 2017**"
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