Collect More, Spend Better: Public Investment in Asian Frontier Markets

By Manuk Ghazanchyan, Ricardo Marto, Jiri Jonas, Kaitlyn Douglass

January 24, 2017

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Manuk Ghazanchyan, Ricardo Marto, Jiri Jonas, and Kaitlyn Douglass. Collect More, Spend Better: Public Investment in Asian Frontier Markets, (USA: International Monetary Fund, 2017) accessed September 18, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We use a dynamic small open economy model to explore the macroeconomic impact of alternative public investment scaling-up scenarios, analyzing how improving the efficiency of capital spending and of tax revenue collection affect growth and debt sustainability for three fast-growing Southeast Asian economies: Cambodia, Sri Lanka, and Vietnam. We show that a gradual public investment profile is more favorable than front-loading capital spending because we assume governments are able to gradually learn how to invest more efficiently, accelerating public capital accumulation and therefore growth. We discuss the pros and cons of alternative financing options and identify the financing mix that generates the best macroeconomic outcome. Sometimes overlooked, improving the efficiency of revenue collection over time may ease the burden of fiscal adjustment, achieving higher GDP growth with substantially lower debt-to-GDP ratios, and will help policymakers efficiently meet the challenge of addressing large infrastructure gaps while maintaining debt sustainability.

Subject: Expenditure, Public debt, Public investment and public-private partnerships (PPP), Public investment spending, Revenue administration, Tax collection

Keywords: Asia and Pacific, Cambodia, Debt Sustainability, East Asia, Efficiency improvement, Fiscal Policy, Gain parameter, Global, Growth, Infrastructure investment, Investment boom, Investment decision, Investment efficiency, Investment efficiency parameter, Investment profile, Investment program, Investment project, Investment scenario, Investment strategy, Public Investment, Public investment and public-private partnerships (PPP), Public investment spending, Real GDP, Revenue Collection, Southeast Asia, Sri Lanka, Sub-Saharan Africa, Tax collection, Vietnam, WP

Publication Details

Pages:

36
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/010
Stock No:

WPIEA2017010
ISBN:

9781475570892
ISSN:

1018-5941

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