Collect More, Spend Better: Public Investment in Asian Frontier Markets

37 Pages Posted: 7 Mar 2017

See all articles by Manuk Ghazanchyan

Manuk Ghazanchyan

International Monetary Fund (IMF)

Ricardo Marto

International Monetary Fund (IMF)

Jiri Jonas

International Monetary Fund (IMF)

Kaitlyn Douglass

International Monetary Fund (IMF)

Date Written: January 2017

Abstract

We use a dynamic small open economy model to explore the macroeconomic impact of alternative public investment scaling-up scenarios, analyzing how improving the efficiency of capital spending and of tax revenue collection affect growth and debt sustainability for three fast-growing Southeast Asian economies: Cambodia, Sri Lanka, and Vietnam. We show that a gradual public investment profile is more favorable than front-loading capital spending because we assume governments are able to gradually learn how to invest more efficiently, accelerating public capital accumulation and therefore growth. We discuss the pros and cons of alternative financing options and identify the financing mix that generates the best macroeconomic outcome. Sometimes overlooked, improving the efficiency of revenue collection over time may ease the burden of fiscal adjustment, achieving higher GDP growth with substantially lower debt-to-GDP ratios, and will help policymakers efficiently meet the challenge of addressing large infrastructure gaps while maintaining debt sustainability.

Keywords: Public investment, Cambodia, Sri Lanka, Vietnam, Southeast Asia, Emerging markets, Tax collection, Capital expenditure, Fiscal policy, Public Investment, Growth, Debt Sustainability, Fiscal Policy, RevenueCollection, Cambodia, Sri Lanka, Vietnam.

JEL Classification: E22, E62, F34, H20, H54, H63, O23

Suggested Citation

Ghazanchyan, Manuk and Marto, Ricardo and Jonas, Jiri and Douglass, Kaitlyn, Collect More, Spend Better: Public Investment in Asian Frontier Markets (January 2017). IMF Working Paper No. 17/10. Available at SSRN: https://ssrn.com/abstract=2924362

Manuk Ghazanchyan (Contact Author)

International Monetary Fund (IMF) ( email )

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

Ricardo Marto

International Monetary Fund (IMF) ( email )

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

Jiri Jonas

International Monetary Fund (IMF) ( email )

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

Kaitlyn Douglass

International Monetary Fund (IMF) ( email )

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

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