Infrastructure Investments
for Sustainable GrowthandFiscal Sustainability in ASIA
December 12, 2023, JEF Conference

Naoyuki YOSHINO
Professor Emeritus of Economics. Keio University
Former Dean & CEO, Asian Development Bank Institute (ADBI)
yoshino@econ.keio.ac.jp1Outline
1, Longーterm Impact of Infrastructure
Port and Logistics
2, Past Deficiencies of PPP
3, Spillover Tax Revenues
Empirical estimates
4, Land Acquisition (Land Trust)
5, Environmental Issues
7, Fiscal Sustainability in Asia

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Spillover Effects of Infrastructure

Employment

New Businesses

Spillover effect (Externality Effects)→ Increases in various tax revenues3

Economic Effects of infrastructure
Effects on GDP
L= Labor
Kp = Private Capital
Kg = Infrastructure

Agricultural sector
Manufacturing sector
Services’ sector(GDP) Y = F (Kp, L, Kg, )Increase in Tax Revenues = ｔY
Property Tax, Corporate Tax
Income Tax, Sales Tax

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Yoshino, N., S. Lakhia, and J. T. Yap. (2021). “Financing
Sustainable Infrastructure Investment in ASEAN+3”. in
Guinigundo, D., Kawai, M., Park, C. Y., Rajan, R. S.
Redefining Strategic Routes to Financial Resilience in
ASEAN+3. Manila, Philippines, ADB.

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The Southern Tagalog Arterial Road(STAR Highway), Philippines, Manila
Tax Revenues in three cities
Yoshino and Pontines (2015)
ADBI Discussion paper 549

Construction

10Operation period

Uzbekistan’s Railway
Contribution to GDP growth = 2.2 %Connectivity enhances economic impacts
Infrastructure connection with other countries
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Environmental Issues
associated with Infrastructuref (Y, CO2) = F (L K )Y= Output
L= labor

CO2 emissions
K= capital,1819Current ESG (Green) investment: distort assetallocation
1, Traditional asset allocation :two parameter approach(i) Rate of return (R),(ii) Risks (σ2）
2, ESG component is added for the asset allocation(iii) ESG (or Greenness) multi-factor model
3, ESG criteria is different from one rating agency toanother
4, Each Investor changes its’ asset allocation basedon specific criteria of ESG given by rating agency

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Optimal portfolio allocation can be achieved by

Net taxation on carbon emission

1, By taxing carbon emission by identicalinternational tax rate, the investors can only look for“after tax rate of return” and “after tax risks” as they
were conventionally focused on.
2, Firm level - International carbon taxation will leadto optimal asset allocation and achieve sustainablegrowth24

Asian Economic Papers (MIT Press), fall 2023

Satellite photo can measure
the amount of CO2 emission.
All the schools
at Yokohama Citymeasure CO2 Emission

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Stock owners

Large Business
Pressure from the market

MSMEs
No market
pressure

Corporate bondholders
BanksBanks
Informalmarket

Debt/GDP Ratio(IMF, 2019)250200150

100500Fiscal Sustainability: Domar condition
Interest rate (r) ≶Economic Growth (g)△b＝Δ(B/Y)△bStabler<gtimer>gDebt
Explosiontime

World Bank, Uneven Recovery, April 202130

Domar Condition : Fiscal Sustainability
The Domar condition is often used to judge whether the budget deficit is sustainable. TheDomar condition is obtained from the government budget constraint:

where G_{t} is government spending, B_{t} is the stock of public debt, T_{t} is total tax
revenues, and r_{t} is the interest rate for public debt. By dividing (1) by GDP Y_{t}, wecan obtain

Interest Rate (rt) > growth rate of the economy(η) → Unstable
Interest Rate (rt)< growth rate of the economy(η) → Stable

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Revised Domar Condition
whereFiscal
SustainabilityCondition

Thus, we have

(17)This implies

IncludingForeignInvestors(18)

Comparison between Greece and Japan

Forthcoming ADBI
Discussion
paper(2020) (2020)
GlobalSolutions
Journal
Revisit Public Debt Stability Condition: Rethinking of the Domar Condition
Naoyuki Yoshino, Keio University
Hiroaki Miyamoto, Tokyo Metropolitan University

Application to China(Central and Local Government)Central Government Bond Market
Gc + r x Bc + TRN = ΔBc + Tc +ΔM
Demand for Central Government Bonds

SupplyLocal Government Bond Market
GL + r x BL = ΔBL＋TL + TRN + NTR
SupplyTRN=Transfer, NTR=Non tax revenues
Demand for Local Government Bonds

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Yoshino, Mizoguchi and Taghizadeh-Hesary (2019). “Optimal fiscal policy rule for achieving fiscal
sustainability: the Japanese case”, Global Business and Economics Review, Vol.21, No.2, pp.156.
Yoshino and Miyamoto (2020) “Revisit Public Debt Stability Condition: Rethinking of the Domar
Condition after COVID-19”, Global Solutions Journal, Germany.
Yoshino and Miyamoto (2021). “Reconsideration of the “Domar condition” to check sustainability ofbudget deficit”, Public Policy Review, Vol/17, No.3..

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Thank you for your attention
Naoyuki YOSHINO
yoshino@econ.keio.ac.jp
Professor Emeritus of Keio University, JAPANDirector/Financial Research Center/FSA/ Government of Japan
Former Dean&CEO,Asian Development Bank Institute(ADBI)/47