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Fiscal space: Reconciling fiscal policy and infrastructure investment

Fiscal space: Reconciling fiscal policy and infrastructure investment. Timothy Irwin Infrastructure Economics and Finance PEAM Course, 22 March 2005. Trade offs between tariffs and investment are inevitable (holding taxes constant). Cost recovery. Power. Water.

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Fiscal space: Reconciling fiscal policy and infrastructure investment

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  1. Fiscal space: Reconciling fiscal policy and infrastructure investment Timothy Irwin Infrastructure Economics and Finance PEAM Course, 22 March 2005

  2. Trade offs between tariffs and investment are inevitable (holding taxes constant) Cost recovery Power Water 2

  3. Cash flows from a typical infrastructure project can be bad for the cash deficit, good for solvency 3

  4. Public investment in infrastructure has declined in Latin America as percentage of GDP 4

  5. Despite increased private investment, total investment has also fallen 5

  6. More developing countries are involving the private sector in infrastructure provision Source: WDR 2005 from PPI database 6

  7. But investment in infrastructure projects with private participation has fallen since the late ‘80s Source: WDR 2005 from PPI database 7

  8. In Latin America, public investment in infrastructure declined with fiscal adjustment 8

  9. And public investment in infrastructure bore a disproportionate share of the burden 9

  10. Infrastructure stocks and economic growth are correlated (1960-2000) 10

  11. Infrastructure stocks are also associated with lower income inequality (1960-2000) 11

  12. Off-balance-sheet liabilities 1: Long-term purchase agreements (e.g. for power) 12

  13. Off-balance sheet liabilities 2: Guarantees on a hypothetical toll road 13

  14. A possible bad outcome 14

  15. A possible good outcome 15

  16. Frequency distribution of government payments in 2016 (10,000 possible outcomes) Average payment in 2016 is $4.19 million Assume riskfree rate is 5% Approximate value of 2016 component of guarantee is 4.19/(1.05)11 = $2.45 million Repeat for all years. 16

  17. The Incheon airport expressway 17

  18. The advantage of accrual government accounting: Example from New Zealand 18

  19. The advantage of recognizing nontraditional liabilities: Napocor’s balance sheet 19

  20. The advantage of recognizing non standard liabilities: US loan guarantees 20

  21. If not recognition, disclosure: Value of Chile’s revenue and exchange guarantees (billion pesos) 21

  22. Chile continued: Disclosure of expected guarantee cash flows (billion pesos) 22

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