《《A Framework for Efficient Government Investment》.pdfVIP

WP/13/58 A Framework for Efficient Government Investment Andrew M. Warner © 2013 International Monetary Fund WP/ 13/ IMF Working Paper Research Department A Framework for Efficient Government Investment Prepared by Andrew M. Warner1 Authorized for distribution by Andrew Berg and Catherine Pattillo February, 2013 This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF, IMF policy, or of DFID. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. Abstract This paper argues that governments can achieve more with given amounts of spending or economize on spending without losing effectiveness by modifying the conceptual framework guiding state expenditures. The familiar framework says that state intervention is justified when the spending provides public goods or when the intervention addresses externalities, provided the social return is above a threshold. This paper argues that another consideration needs to be brought into the mix - whether, in spite of the externalities, the private sector has an incentive to undertake the activity. It is argued that these two considerations together define a more efficient framework under which to justify state intervention. According to this modified framework, even a benign state interested in social welfare would not in fact address every externality nor necessari