|
on Public Economics |
| By: | Åsa Johansson |
| Abstract: | This paper reviews the key issues concerning the impact of public spending and taxation on long-run growth and inequality and takes stock of existing theoretical and empirical studies. Overall, the evidence highlights that the size of the government matters for long-term growth as a too large government may undermine growth through the cost of financing public spending. A reallocation of public spending towards infrastructure and education would raise income in the long run, whereas increasing social welfare spending can reduce inequality as such spending increases redistribution and risk sharing. Similarly, the available evidence also supports the hypothesis that some taxes are more distortionary than others, with income taxes found to be more harmful for growth than consumption and property taxes. However, a tax shift from income towards consumption taxes has equity implications, since income taxes are generally more progressive than other taxes. The effect of a reallocation of spending and taxes on growth and inequality likely varies across countries depending on country characteristics. Finances publiques, croissance économique et inégalités : Une revue de littérature Ce rapport examine les principales questions liées à l’impact des dépenses publiques et de la fiscalité sur la croissance à long terme et les inégalités, et fait le point sur les études théoriques et empiriques déjà publiées. Il ressort de ces publications que la taille du secteur public exerce une influence sur la croissance à long terme, dans la mesure où un secteur public trop important peut freiner la croissance en raison de la charge financière qu’il représente. La réaffectation des dépenses publiques au financement des infrastructures et de l’éducation peut avoir un effet bénéfique sur le revenu à long terme, tandis que l’augmentation des dépenses allouées à la protection sociale peut contribuer à résorber les inégalités en favorisant la redistribution et la mutualisation des risques. Ces études corroborent en outre l’hypothèse selon laquelle certains impôts génèrent davantage de distorsions que d’autres : il est ainsi attesté que les impôts sur le revenu pèsent davantage sur la croissance que les impôts sur la consommation ou la propriété. Néanmoins, un transfert de la charge fiscale du revenu vers la consommation a des implications en termes d’équité, étant donné que les impôts sur le revenu sont généralement plus progressifs que les autres. Les conséquences qu’aurait, sur la croissance et les inégalités, une réaffectation des dépenses et des impôts varient selon les pays, en fonction des caractéristiques de chacun. |
| Keywords: | economic growth, fiscal policy, income inequality, Public spending, taxation |
| JEL: | D31 O43 H30 H11 H50 H21 O40 H20 |
| Date: | 2016–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1346-en&r=pbe |
| By: | Nazila Alinaghi; W. Robert Reed (University of Canterbury) |
| Abstract: | This paper uses meta-analysis to evaluate the results of 42 studies and 641 individual estimates of the effect of taxes on economic growth in OECD countries. Our analysis addresses a number of difficult coding issues such as: implications of the government budget constraint for interpretations of tax effects; units of measurement for economic growth rates and tax rates; implications of equation specifications that measure short-run, medium-run, and long-run effects; length of time period (annual data versus multi-year periods); and other factors. Our main findings are: Estimates in the literature are characterized by significant (negative) publication bias. Controlling for publication bias, we find that increases in unproductive expenditures funded by distortionary taxes and/or deficits have a significant, negative effect on growth; while increases in non-distortionary taxes to fund productive expenditures and/or government surpluses have a significant, positive effect. The estimated differences in these policies indicate that there is scope for tax policy to have a meaningful impact on economic growth. Finally, we find weak evidence that taxes on labour are more growth retarding than other types of taxes, while the evidence regarding other types of taxes is mixed. |
| Keywords: | Meta-analysis, taxes, economic growth, OECD |
| JEL: | H2 H5 H6 O47 O50 |
| Date: | 2016–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:cbt:econwp:16/37&r=pbe |
| By: | Kanbur, Ravi; Pirttila, Jukka; Tuomala, Matti; Ylinen, Tuuli |
| Abstract: | The existing literature on optimal taxation typically assumes there exists a capacity to implement complex tax schemes, which is not necessarily the case for many developing countries. We examine the determinants of optimal redistributive policies in the context of a developing country that can only implement linear tax policies due to administrative reasons. Further, the reduction of poverty is typically the expressed goal of such countries, and this feature is also taken into account in our model. We derive the optimality conditions for linear income taxation, commodity taxation, and public provision of private and public goods for the poverty minimization case, and compare the results to those derived under a general welfarist objective function. We also study the implications of informality on optimal redistributive policies for such countries, and comment on the potential for minimum wage regulation. The exercise reveals non-trivial differences in optimal tax rules under the different assumptions. The derived formulae also capture the sufficient statistics that the governments need to pay attention to when designing poverty alleviation policies. |
| Keywords: | Redistribution, income taxation, commodity taxation, public good provision, poverty, Agricultural and Food Policy, Food Security and Poverty, H21, H40, O12, |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:ags:cudawp:250018&r=pbe |
| By: | Alastair Thomas (OECD); Pierce O’Reilly (OECD) |
| Abstract: | This paper examines the impact of tax and benefit systems on the incentives for second earners to enter formal employment. The paper highlights how various tax design features create greater participation disincentives for second earners than for primary earners or single individuals. As second earners in OECD countries are more often women, these greater disincentives create significant gender-equity concerns. As second earners are also typically highly responsive to work disincentives, these features are likely to negatively impact economic growth. These disincentives stem from a range of policies including the choice of family-based rather than individual-based taxation, the use of dependent spouse tax credits and allowances, and the use of tax credits and benefits based on family rather than individual income. Reform options to address these issues will depend on countries’ existing tax policy design choices. For countries where individual-based taxation is combined with some family-based provisions, reform of these family-based provisions to lessen their impact on second earner work disincentives may be warranted. For countries with family-based tax systems, the introduction of some individual-based provisions could be considered to mitigate the negative effects of family-based taxation on second earner work incentives. |
| Date: | 2016–12–14 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ctpaaa:29-en&r=pbe |
| By: | María T. Álvarez-Martínez (European Commission - JRC); Salvador Barrios (European Commission - JRC); Diego d'Andría (European Commission - JRC); Maria Gesualdo (European Commission - JRC); Jonathan Pycroft (European Commission - JRC); Dimitrios Pontikakis (European Commission - JRC) |
| Abstract: | In a globalised world economy where capital is highly mobile governments are eager to attract foreign investors by lowering their corporate tax rates. EU countries have been particularly active in this respect given that capital can move freely across EU member states´ borders thanks to reforms removing major obstacles to cross-border investments. Multinationals are therefore in a good position to exploit the tax loopholes associated with the complexity and multiplicity of tax regimes in the EU. As a result tax revenues and tax levels might be distorted and a closer coordination of tax rate setting might be warranted. In this paper we quantify the macroeconomic consequences of changing corporate tax rates depending on a given EU country specific situation, in particular in terms of economic size and tax level and structure, and we investigate the possible case for a closer coordination of corporate tax policies in the EU. We use a computable general equilibrium (CGE) model reflecting countries´ heterogeneity to assess the economic impact of corporate tax changes and the possible economic impacts of uncoordinated and coordinated tax policy reforms in the EU. The aim of this paper is to contribute to the ongoing debate about the desirability, modality and likely impact of alternative policy solutions to the challenges posed by tax competition and aggressive tax planning. We find that corporate income tax rates can generate substantial responses within the implementing country as well as beyond its own borders depending on the country size. Harmonisation of CIT rates would involve winners and losers and it may have costs for the EU and as such, may be best pursued gradually and as part of a broader package of corporate tax reform on tax bases and government transfers. |
| Keywords: | corporate taxation, computable general equilibrium models, tax harmonization |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:taxref:201604&r=pbe |
| By: | Robin Boadway (Queen's University); Katherine Cuff (McMaster University); Kourtney Koebel (Queen's University) |
| Abstract: | We propose mechanism for implementing a two-stage harmonized Basic Income Guarantee with federal and provincial components. In Stage One, the federal government replaces its refundable and nonrefundable tax credits with an income-tested basic income delivered through the income tax system. The reform is revenue-neutral. In Stage Two, each province decides whether to implement a provincial basic income guarantee that is harmonized with the federal one but allows province-specific basic income levels. The provincial basic income replaces provincial refundable and nonrefundable tax credits as well as welfare and disability transfers, and is also revenue-neutral. All social services and contributory social insurance programs remain intact. An illustrative calculation using Statistical Canada’s SPSD/M model shows the financial feasibility of a national BIG of $20,000 per adult adjusted for family size with a benefit reduction rate of 30%. |
| Keywords: | basic income guarantee, inequality, fiscal federalism |
| JEL: | H2 H7 I3 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:qed:wpaper:1371&r=pbe |
| By: | Jessen, Robin |
| Abstract: | I propose a method to decompose changes in income inequality into the contributions of policy changes, wage rate changes, and population changes while considering labor supply reactions. Using data from the Socio-Economic Panel (SOEP), I apply this method to decompose the increase in income inequality in Germany from 2002 to 2011, a period that saw tax reductions and a controversial overhaul of the transfer system. The simulations show that tax and transfer reforms have had an inequality reducing effect as measured by the Mean Log Deviation and the Gini coefficient. For the Gini, these effects are offset by labor supply reactions. In contrast, policy changes explain part of the increase in the ratio between the 90th and the 50th income percentile. Changes in wage rates have led to a decrease in income inequality. Thus, the increase in inequality was mainly due to changes in the population. |
| Keywords: | Inequality,Decomposition,Labor Supply,Microsimulation,Policy Reform |
| JEL: | D31 H23 I38 J31 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fubsbe:201624&r=pbe |
| By: | Jarmila Botev; Jean-Marc Fournier; Annabelle Mourougane |
| Abstract: | To what extent can public deficits increase without putting fiscal sustainability at risk, given the specific current macroeconomic situation of protracted low growth and low interest rates, combined with relatively high government debt levels? The answer depends on many factors, such as the state of the economy, the fiscal track record and projections of population ageing and their effect on government spending. This paper makes use of three different approaches to better assess fiscal space, which can be defined in a broad manner as the extent to which public debt can increase. These approaches converge to a conclusion that there is fiscal space in most of the large advanced economies. There is also evidence that fiscal space may have risen in most OECD countries since 2014, mainly driven by the decrease in interest rates. Reforms to health and pension programmes would help to create additional fiscal space. Une ré-évaluation des marges de manoeuvre budgétaires dans les pays de l'OCDE Dans quelle mesure les déficits publics peuvent-ils augmenter sans compromettre la viabilité budgétaire? La situation macroéconomique actuelle, caractérisée par une faible croissance prolongée et de faibles taux d’intérêt, combinée à un niveau d’endettement public relativement élevé, justifie une réévaluation de cette question. Sa réponse dépend de nombreux facteurs, tels que l’état de l’économie, les antécédents budgétaires ou les projections du vieillissement de la population et leurs effets sur les dépenses gouvernementales. Ce document utilise trois approches différentes pour mieux évaluer les marges de manoeuvre budgétaires, qui peuvent être définie de manière large comme la mesure dans laquelle la dette publique peut augmenter. Ces approches convergent vers la conclusion qu’il existe des marges de manoeuvre budgétaires dans la plupart des grandes économies avancées. Il est également prouvé que l’espace budgétaire peut avoir augmenté dans la plupart des pays de l’OCDE depuis 2014, principalement sous l’effet de la baisse des taux d’intérêt. Les réformes des programmes de santé et de retraite aideraient à créer des marges de manoeuvre budgétaires supplémentaires. |
| Keywords: | fiscal space, fiscal sustainability, market access |
| JEL: | H3 C3 |
| Date: | 2016–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1352-en&r=pbe |
| By: | Joshua C. Hall (West Virginia University, Department of Economics); Joshua Matti (West Virginia University, Department of Economics); Yang Zhou (West Virginia University, Department of Economics) |
| Abstract: | The United States has a rich history of local government taxation and good provision. The last fifty years, however, have seen increasing calls for the regionalization of municipal taxes and services from policymakers. Arguments for greater regionalization emphasize improved efficiency, enhanced equity, mitigation of spillovers, and improved economic development. A number of localist scholars have responded to regionalists’ concerns. This review articulates regionalists’ arguments, the localists’ response, and then summarizes the relevant empirical literature to see which side’s theories hold forth in the data. |
| Keywords: | local governments, Bloomington School, regionalism, localism |
| JEL: | H11 H70 H71 H77 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:wvu:wpaper:16-20&r=pbe |
| By: | Hayley Reynolds; Ludvig Wier |
| Abstract: | Using the universe of South African corporate tax returns for 2009–14, we estimate profit- and debt-shifting responses in South Africa. We find evidence that South African subsidiaries engage in profit shifting and that profit-shifting responses to tax incentives across all channels are systematically higher compared to developed countries. |
| Keywords: | developing countries, international taxation, multinational firms, profit shifting, tax |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp2016-128&r=pbe |
| By: | Ali Enami (Tulane University and CEQ Institute.) |
| Abstract: | This paper introduces two new Commitment to Equity (CEQ) indexes to assess the effectiveness of taxes and transfers in reducing inequality and poverty: the Impact and Spending Effectiveness indicators. The Spending Effectiveness indicator has an additional interpretation as a measure of efficiency. These effectiveness indicators are used in this paper to rank taxes and transfers in Iran. In addition, I estimate the Fiscal Impoverishment and Fiscal Gains to the Poor Effectiveness indicators, which have also been developed by the CEQ Institute. The results show that in this case study, taxes and transfers are similarly effective in achieving their inequality-reducing potential. The income tax is the most effective intervention on the revenue side, achieving 40 percent of its inequality-reducing potential. On the spending side, social assistance transfers are the most effective, achieving 45 percent of their potential. Taxes are especially effective in raising revenue without causing poverty to rise, indicating that the poor are largely spared from taxation. In contrast, transfers are not very effective because the majority of them are not targeted to the poor: the most effective transfers achieve 21 percent of their poverty reduction potential. |
| Keywords: | Inequality, poverty, fiscal incidence, marginal contribution, effectiveness indicator, policy simulation, Iran |
| JEL: | D31 H22 I38 |
| URL: | http://d.repec.org/n?u=RePEc:tul:ceqwps:58&r=pbe |
| By: | Ali Enami (Tulane University and CEQ Institute.); Nora Lustig (Stone Center for Latin American Studies, Department of Economics, Tulane University.); Rodrigo Aranda (Tulane University and CEQ Institute.) |
| Abstract: | This paper provides a theoretical foundation for analyzing the redistributive effect of taxes and transfers for the case in which the ranking of individuals by pre-fiscal income remains unchanged. We show that in a world with more than a single fiscal instrument, the simple rule that progressive taxes or transfers are always equalizing not necessarily holds, and offer alternative rules that survive a theoretical scrutiny. In particular, we show that the sign of the marginal contribution unambiguously predicts whether a tax or a transfer is equalizing or not. |
| URL: | http://d.repec.org/n?u=RePEc:tul:ceqwps:25&r=pbe |
| By: | Debra Bloch; Jean-Marc Fournier; Álvaro Pina |
| Abstract: | To investigate how public finances could best be designed to promote long-run growth and address inequality, it is essential to have comprehensive, cross-country comparable data on government spending and revenues, along with structural and policy indicators. By identifying key variables of public finance across as many OECD countries as possible, and with a time series element to allow for longitudinal analysis, the OECD Public Finance Dataset provides a detailed data set to contribute to an evidence-based debate on shaping growth-enhancing and equality-promoting fiscal policies. Characteristics of both country groupings and individual country public finance profiles are highlighted as examples of the potential of these data to provide policy insights. Tendances des finances publiques à la lumière d’une nouvelle base de données Pour étudier la façon dont les finances publiques pourraient être mieux conçues pour promouvoir la croissance à long terme et remédier aux inégalités, il est essentiel d'avoir des données complètes et comparables entre les pays sur les dépenses et les recettes publiques, ainsi que des indicateurs structurels et politiques. En identifiant les variables clés des finances publiques parmi autant de pays de l'OCDE que possible, et avec une dimension temporelle pour permettre une analyse longitudinale, la base de données de finances publiques de l’OCDE fournit des données détaillées pour contribuer à un débat fondé sur les faits au sujet des politiques budgétaires favorisant la croissance et de l'égalité. Les caractéristiques de groupes de pays et de profils de finances publiques par pays sont mises en avant comme des exemples du potentiel de ces données pour fournir un éclairage sur les politiques budgétaires. |
| Keywords: | COFOG, inclusive growth, public finance, public spending, taxes |
| JEL: | H2 H5 E62 |
| Date: | 2016–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1345-en&r=pbe |
| By: | Ufuk Akcigit; Douglas Hanley; Stefanie Stantcheva |
| Abstract: | We study the optimal design of R&D policies and corporate taxation when the outputs of innovation are not appropriable in the absence of intellectual property rights policies and there are non-internalized technology spillovers across firms. Firms are heterogeneous in their research productivity, i.e., in the efficiency with which they convert a given set of R&D inputs into successful innovations. There is asymmetric information about firm productivity and about its stochastic evolution over time that prevents the first best solution to the technology spillover. The problem is thus posed as one of dynamic mechanism design with externalities. We characterize the optimal constrained efficient allocations over firms' life cycles and for firms of different productivities. We show that the constrained efficient allocations can be implemented either by a patent system plus a price subsidy for the monopolists' products, together with a parsimonious R&D subsidy function or, equivalently, by a prize mechanism. We estimate our model using firm-level data matched to patent data and quantify the optimal policies. Simpler innovation policies, such as linear R&D subsidies and linear profit taxes, lead to large revenue losses relative to the optimal mechanism. |
| JEL: | H0 H2 H21 H23 H25 O0 O31 O32 O33 O38 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22908&r=pbe |
| By: | Cellini, Roberto; Prezzavento, Luca C |
| Abstract: | This article investigates how the public expenditure structure, and the expenditures in specific fields of the public sector, are affected by the dynamics of interest payment on public debt, in the case of Italy. Italy has the third largest public debt in the world, and interest payments are of considerable size; though not steadily, however, their dynamics has been decreasing over the last two decades. This could have represented an opportunity for restructuring public expenditure. However, our results show that there is no effect of the dynamics of interest payments upon the dynamics of primary public expenditure. The result is based on the analysis of both Granger-causality links and simultaneous relations between interest payments and primary public expenditure. Public expenditure is considered in aggregate terms in current and capital account, and as articulated in a number of specific areas. |
| Keywords: | Public debt; Public expenditure; Interest payment; Debt cost; Italy. |
| JEL: | H50 H61 |
| Date: | 2016–12–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:75492&r=pbe |
| By: | Susana Párraga Rodríguez (University College London) |
| Abstract: | This paper estimates the aggregate effect of government income transfer shocks for a sample of EU countries. The new measure of transfer shocks builds on a dataset by public fi nance experts of the European System of Central Banks (ESCB). The identifi cation strategy consists of a narrative analysis of the old-age pension-related policy actions reported in the ESCB dataset. Increases in old-age pensions are found to have a positive impact on aggregate expenditure components and employment consistent with a multiplier effect of between 0 and 1. |
| Keywords: | transfer payments, public pensions |
| JEL: | E2 E62 H55 I38 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1629&r=pbe |
| By: | Badi H. Baltagi (Center for Policy Research, Maxwell School, Syracuse University, 426 Eggers Hall, Syracuse, NY 13244); Raffaele Lagravinese (University of Bari); Francesco Moscone (Brunel University); Elisa Tosetti (Brunel University) |
| Abstract: | This paper investigates the long-run economic relationship between health care expenditure and income in the world using data on 167 countries over the period 1995-2012, collected from the World Bank data set. The analysis is carried using panel data methods that allow one to account for unobserved heterogeneity, temporal persistence, and cross-section dependence in the form of either a common factor model or a spatial process. We estimate a global measure of income elasticity using all countries in the sample, and for sub-groups of countries, depending on their geo-political area and income. Our findings suggest that at the global level, health care is a necessity rather than a luxury. However, results vary greatly depending on the sub-sample analyzed. Our findings seem to suggest that size of income elasticity depends on the position of different countries in the global income distribution, with poorer countries showing higher elasticity. |
| Keywords: | Health Expenditure; Panels; Income Elasticity; World; Exploring the Geography of Health |
| JEL: | C31 C33 H51 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:max:cprwps:197&r=pbe |
| By: | Salvador Barrios (European Commission - JRC); Francesco Figari (University of Insubria and ISER University of Essex); Luca Gandullia (University of Genova); Sara Riscado (European Commission - JRC) |
| Abstract: | Tax expenditures are preferential tax treatments granted to specific individuals or categories of households which aim at achieving social and economic goals – poverty and inequality reduction, and employment promotion, among others. Tax expenditures are widely used by EU Member States. However, their fiscal and equity impacts are not always clear and their effectiveness and efficiency as a policy instrument needs to be carefully evaluated, especially in the present context of constrained public finances. Tax expenditures might in some cases distort economic incentives be it towards consumption or investment, in some case by favouring rent seeking behaviour and making tax systems less transparent and/or regressive from a social viewpoint. While policy recommendations often call for streamlining tax expenditures, in practice policy measures are often difficult to design in particular given the difficulty in measuring the fiscal and equity impact of tax expenditures. This paper quantifies the fiscal and equity effects of tax expenditures in 27 European countries making use of EUROMOD, the EU-wide microsimulation model. We focus on four specific categories of preferential tax treatments affecting personal income taxation related to housing, pension, education and health expenditures. One key feature of the microsimulation model EUROMOD is that it embeds the interaction between different tax instruments and benefits entitlement which, in EU tax systems, proves essentially to fully gauge the fiscal and equity impact of tax expenditures. In order to quantify the impact of tax expenditure on governments' tax revenues and on households' disposable income a benchmark tax system scenario is created where tax expenditures – in the form of allowances, deductions, exemptions, reliefs and credits – are explicitly considered. We find a variety of effects, in terms of sign and magnitude, across Member States, and within these, among types of households and across generations. Overall our findings suggest that the impact of tax expenditure on tax revenues and on income inequalities can be sizeable. The redistributive impact of removing tax expenditures can go both directions, either on the progressive or regressive side, depending on the country and the tax expenditure considered. This result points out to the importance of a careful country specific scrutiny, for each type of tax expenditures. |
| Keywords: | Tax expenditures, microsimulation, fiscal and equity impacts |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:taxref:201601&r=pbe |
| By: | Armando Barrientos; Richard de Groot; Luigi Peter Ragno; Abdul-Gafaru Abdulai; Daisy Demirag; UNICEF Office of Research - Innocenti |
| Abstract: | The paper provides an examination of the relevance of ethics to poverty reduction. It argues that linking the shared values that define the social arrangements and institutions, which we refer to as ‘ethical perspectives’, to the emerging welfare institutions addressing poverty in developing countries provides a window into these processes of justification at a more fundamental level. By ethics of poverty the authors refer to the most basic arguments and processes used to justify how and why we assist people living in poverty. Given the extent to which poverty reflects injustice, they argue it is appropriate to consider poverty in the context of ethics. Drawing on the recent expansion of social assistance in Brazil, South Africa and Ghana, the paper shows that ethical perspectives are relevant to our understanding of the evolution of anti-poverty policy. |
| Keywords: | cash transfers; ethics; poverty reduction; social welfare; |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:ucf:inwopa:inwopa871&r=pbe |
| By: | Huseyin Murat Ozbilgin |
| Abstract: | This paper studies the welfare impact of a reform that reduces the completion duration of public capital. For a sample of emerging economies, I inspect the welfare gains from shortening the completion time from 10 to 3 years by tailoring a parsimonious general equilibrium model. My analysis reveals sizable gains from the reform. For the mean emerging country in the sample, the reform brings about 1.53 percent benefits in terms of compensating variation in consumption. Rising social demand for public investment under a shorter implementation duration moves the economy towards a higher public capital to output ratio, which leads to higher levels of private investment and consumption, bringing notable welfare gains. Most of the gains accrue within 15 years after the reform. For certain countries, such as Thailand, Romania, Russia, and India, the gains emerge as remarkably large, whereas for another group that includes Serbia, Bulgaria, Phillippines, and Argentina, the gains turn out to be modest. |
| Keywords: | Public investment, Time-to-Build, Externalities, Welfare |
| JEL: | E22 E62 H30 H54 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:1628&r=pbe |