Public-Private Partnership and fiscal illusion: A systematic review (original) (raw)
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In the time when one of the most important question is how to use the limited resources available in the most efficient and sustainable way, public spending must be accompanied by steps to strengthen the efficiency and targeting of these outlays. The main problem is how to meet the requirements of the public which are growing faster than the state's budgetary possibilities. Public-Private Partnership appears as one of the modern ways of solution of the above dilemma. The other solution seems to be the financing of the public investments with EU Funds, but the providing of co-financing according to the principle of the additionality commits significant sources also from the budget, so the question arises: is the appliance of the PPP financing technique and the use of EU supports possible in the framework of the same project? The infrastructural public investments realized with a PPP financing technique together with the use of EU supports is a complex process. Currently the new 2...
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Public-private partnerships (PPPs) have become increasingly popular in recent years. We show that for these arrangements to be desirable from a public finance point of view, private firmsmust be productivelymore efficient than the public sector. In particular, PPPs are not a means to save on distortionary taxation. We also characterize the contract that trades off optimally demand risk, user-fee distortions and the opportu-nity cost of public funds, under the assumption that the private sector is more efficient. The private firm is fully insured against demand risk in the case of large and small projects, but bears risk for projects of intermediate size. For small projects, no subsidies are required and the optimal contract length is demand contingent. By con-trast, demand contingent subsidies are handed out in every state of demand for large projects and the contract lasts indefinitely. For projects of intermediate size the optimal contract involves a “minimum income guarantee” and...
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We explore the distribution of public–private partnerships (PPPs) among the European Union countries, with a special focus on fiscal rules and budgetary constraints while controlling for empirically identified drivers. While offering the opportunity to increase innovation and efficiency in the public sector infrastructure, PPPs allow governments to relax their budget and borrowing constraints. We find that the state of public finances influences the government’s choice of PPPs and makes them more appealing for reasons other than efficiency. Stringent numerical rules on the budget balance also foster government’s opportunism in the choice of PPPs. On the other hand, high levels of public debt increase the country risk, and discourage private investors from PPP contracts. The results highlight the importance of restoring PPP investment choices based on efficiency criteria and adapt fiscal rules to shield public investment while stabilizing private expectations by means of credible tra...