Incentives for public investment under fiscal rules
By: Jack M. Mintz, Michael Smart
Contributors: Smart, Michael; World Bank
Series: Policy research working paper -- 3860; Policy research working papers (Online) -- 3860.
Publisher: World Bank
Published: 2006
Place of publication: Washington, D.C
Language: eng
Format: [electronic resource] /
Subjects: Investment of public funds; Capital budget; Gross domestic product
Description: "The authors explore the relationship between fiscal rules and capital budgeting.  The current budgetary approach to limit deficits to a fixed portion of GDP or to balance budgets could undermine incentives to invest in public capital with long-run returns since politicians concerned about electoral prospects would favor expenditures providing immediate benefits to their voters.  An alternative budgetary approach is to separate capital from current revenues and expenditures and relax fiscal constraints by allowing governments to finance capital expenditures with debt, as suggested by the golden rule approach to capital funding.  But the effect of capital budgeting would be to provide opportunities to politicians to escape the fiscal rule constraints by shifting current expenditures into capital accounts that are difficult to measure properly, thereby leading to increased borrowing.  As an alternative, the authors propose a modified golden rule limiting debt finance to a proportion of the government's investment in self-liquidating assets. "--World Bank web site.
Notes: Title from PDF file as viewed on 3/8/2006.

Includes bibliographical references.

Also available in print.

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Mode of access: World Wide Web.