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The variation in the size of the estimated coefficients is small; a one $ increase in GDP per capita increases consolidated infrastructure expenditures by approximately (1980) US $ 0.03. Given the limited evidence of any nonlinear effect, it makes sense to compute the elasticity from the linear term alone. If one does so, the estimated elasticity is 1.83, higher than that found in the case of central budget expenditures. However, if one considers that multicollinearity may have reduced the estimated significance of the quadratic term, then the estimated elasticity is 1.42, just under that found for central budget expenditures.

The findings are quite comparable when one measures level of development on the basis of purchasing power parity dollars, as can be seen from Table C3 in Appendix C. The relationship between GDPCAP2 and consolidated budget per capita infrastructure expenditures is robustly positive and is consistently significant at the 1 percent level. The quadratic term is generally, but not always, negative but never significant even at the 15 percent level. The coefficient magnitudes imply an elasticity at the sample mean of about 1.30, whether or not the elasticity calculation takes account of the quadratic term. This again is somewhat lower than that found for central budget infrastructure expenditures.

# _7. Internal Balance_

The results of the consolidated budget per capita infrastructure expenditure regressions provide mixed results concerning how governments adjust infrastructure expenditures in response to fiscal crises. The estimated coefficient for BBGDPL is always negative and is generally significant at the 5 percent level or better, implying that as the budget balance deteriorates, consolidated budget per capita expenditures on infrastructure increase. Across sensitivity analyses, the estimated coefficients range within fairly narrow bounds, generally between -0.26 and -0.58. This implies that when there is a budget deficit (BBGDPL<0), a further deterioration [improvement] in the budget balance leads to an increase [decrease] in consolidated budget per capita infrastructure expenditures. The estimated elasticity at the sample mean is 0.17 (calculated from Table 9, M2), given the sample mean value for BBGDPL of -6.6.

Table C4 in Appendix C shows the results of the sensitivity analysis comparing results for INFL4 with those for BBGDPL. The signs are inconsistent with the results for BBGDPL; INFL4 is negatively (but nonlinearly) related to consolidated budget infrastructure expenditures. This implies that as the budget balance deteriorates, inducing inflation, govemments respond by scaling back infrastructure expenditures in apparent contradiction to the findings for BBGDPL. However, significance levels are low. The coefficients are only significant at the 10 or 15 percent level. The magnitude of the estimated coefficients indicate that consolidated budget expenditures on infrastructure decrease as the inflation rate increases until the inflation level reaches 241 percent, more than three standard deviations above the sample mean inflation value. At the sample mean, the estimated elasticity is -0.12, the same estimated elasticity value found for central budget expenditures.