Welfare Gains from Reducing the Implementation Delays in Public Investment

Welfare Gains from Reducing the Implementation Delays in Public Investment

Title:

Welfare Gains from Reducing the Implementation Delays in Public Investment

Number:

16/28

Author(s):

H. Murat Özbilgin

Language:

English

Date:

December 2016

Abstract:

This paper studies the welfare impact of a reform that reduces the completion duration of public capital. For a sample of emerging economies, I inspect the welfare gains from shortening the completion time from 10 to 3 years by tailoring a parsimonious general equilibrium model. My analysis reveals sizable gains from the reform. For the mean emerging country in the sample, the reform brings about 1.53 percent benefits in terms of compensating variation in consumption. Rising social demand for public investment under a shorter implementation duration moves the economy towards a higher public capital to output ratio, which leads to higher levels of private investment and consumption, bringing notable welfare gains. Most of the gains accrue within 15 years after the reform. For certain countries, such as Thailand, Romania, Russia, and India, the gains emerge as remarkably large, whereas for another group that includes Serbia, Bulgaria, Phillippines, and Argentina, the gains turn out to be modest.

Keywords:

Public investment, Time-to-Build, Externalities, Welfare

JEL Codes:

E22; E62; H30; H54

Welfare Gains from Reducing the Implementation Delays in Public Investment
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