As You Sow so Shall You Reap: Public Investment Surges, Growth, and Debt Sustainability in Togo

41 Pages Posted: 9 Aug 2012

See all articles by Michal Andrle

Michal Andrle

International Monetary Fund (IMF)

Antonio C. David

World Bank - Policy Research Department; International Monetary Fund (IMF)

Raphael A. Espinoza

International Monetary Fund (IMF)

Marshall Mills

International Monetary Fund (IMF)

Luis-Felipe Zanna

International Monetary Fund (IMF)

Date Written: May 2012

Abstract

This paper presents an analysis of the public investment scaling-up strategy for Togo using a dynamic macroeconomic model that explicitly analyzes the links between public investment, economic growth, and debt sustainability. In the model, public capital is productive and complementary to private capital, generating positive medium and long-run effects to increases in public investment. The model application indicates that a very large increase in public investment would have positive macroeconomic effects in the long-run, but would require unrealistic increases in the tax burden to cover recurrent costs and ensure debt sustainability. More modest increases in public investment would require more feasible increases in the tax burden, particularly if the efficiency of tax collection is improved. The model simulations also emphasize the importance of improvements in the efficiency of public investment to reap welfare gains. However, even if the macroeconomic implications of public investment scaling-up can be favorable in the long-run under certain assumptions on rates of return and efficiency of investment, the transition period is challenging and exposes the country to increased risk of unsustainable debt dynamics. The model was also used to assess the growth projections underlying the standard Excel-based debt sustainability analysis for Togo.

Keywords: Public Investment, Debt Sustainability, Developing Countries, Economic Growth, Economic Models, Infrastructure, Tax Burdens

JEL Classification: E62, F34, O42

Suggested Citation

Andrle, Michal and David, Antonio C. and Espinoza, Raphael A. and Mills, Marshall and Zanna, Luis-Felipe, As You Sow so Shall You Reap: Public Investment Surges, Growth, and Debt Sustainability in Togo (May 2012). IMF Working Paper No. 12/127, Available at SSRN: https://ssrn.com/abstract=2127022

Michal Andrle (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Antonio C. David

World Bank - Policy Research Department ( email )

1818 H Street
Washington, DC 20433
United States

International Monetary Fund (IMF) ( email )

700 19th Street N.W.
Washington, DC 20431
United States

Raphael A. Espinoza

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

HOME PAGE: http://oxford.academia.edu/RaphaelEspinoza

Marshall Mills

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Luis-Felipe Zanna

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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