Investment appraisal in the public sector

Recent developments, such as privatization and the private financeinitiative, have raised the issue of which assets should beowned by the public sector and whether assets have differentvalues in the public and private sectors. In order to answerthe questions, we first note that the allocative considerationsthat usually motivate government intervention need not requirethe direct provision of services by the government using government-ownedassets. We then argue that the government should own the assetsused to provide the services where the private sector fearsexpropriation by the government, or where ownership conferson the private sector such power as to preclude efficient allocations.Finally, we argue that the discount rate for governments' projectsequals the expected return on comparable investments in thecapital markets. The government should, however, discount pre-taxcash flows at the pre-tax discount rate, for it receives alltax revenues.     

Government intervention in the capital allocation process: Excess employment as an IPO selection rule in China

We study the role of excessive employment as a selection criterion for initial public offerings (IPOs) in China. Using a large dataset of firms that are eligible for a public offering, we find that firms' that have more excess employment – that is, firms that hire too many people – are more likely to be selected for an IPO. This correlation is stronger for the private sector than for the state sector, suggesting that stock market capital is used to direct capital flows to private firms that comply with politicians' preferred labor practices. A third set of results corroborates the inefficiency of this selection rule by showing that firms with more excess labor underperform after the IPO. We conclude that a political system known for its interventionistic government policies uses its influence over the stock market to signal preferred employment practices.     

Government and the Colonial Economies

From the time of Macquarie the beneficial effects of government came less from material support than from the recognition of an emerging free society, dependent for its success on the rule of law, the strengthening of property rights, improved administration, low taxation, and an environment of confidence and opportunity that encouraged voluntary flows of people and capital from Britain and Ireland. After 1860, the value of the government contribution to growth was reduced by the destabilizing and growth-distorting consequences of public investment. The economic contribution of colonial governments in thi later period was found less in their willingness to construct public capital assets and more in the provision of a favourable and permissive environment in which private decision-makers were to a large extent free to pursue their own private ends.     

Fiscal lessons from the East Asian financial crisis

This paper examines the financial crises experienced in East Asian countries beginning in 1997. A common thread of these occurrences is the failure to address the risks of positions and policies by either the public or private sector, suggesting that there is a need to improve fiscal flexibility, to better understand public sector assets and liabilities, and for a more flexible public cash management or control system. The international community may need to establish fast-disbursing assistance systems to support this increased flexibility.     

Implementation of socially optimal outcomes in the liquidation of public enterprises in China

The authors study an optimal cost-sharing scheme between the central and local governments in China's current process of dissolving public firms through mergers and bankruptcies. They first define the social choice rule that minimizes social costs, then design a mechanism that both implements this rule truthfully under imperfect information and minimizes the central government's payment. Collusion between the local government and local firms as well as competition among local firms are explored. The findings show that writing off the bad loans and hardening the budget constraint are two necessary conditions to provide right incentives for truthful revelation. This result is consistent with the predictions of other theories and some recent proposals of revitalizing the banking system and the state sector in China.     

China's sovereign debt: A balance-sheet perspective

We analyze China's sovereign debt by constructing balance sheets for China's government and public sector. We find that China's government debt-to-GDP ratio is lower than that of most large developed economies. We also find the debt-to-asset ratio of China's government and public sector significantly lower than its own historical height (1998–2002). Local government debt is mainly to finance infrastructure investments. Local government debt risk is amplified by two mismatches. The first is the income-expenditure mismatch between central and local governments. The second is the maturity mismatch of short-term debt and long-term infrastructure investments. The maturity mismatch may cause short-term repayment difficulties.     

SHOULD SOUTH AFRICA HAVE A FISCAL RULE?

Over the past three decades many countries have struggled to find solutions to their persistent public sector deficits. For some the solution to this problem seemingly became the adoption of fiscal rules. This paper considers the applicability of one such rule, namely the output‐sensitive deficit rule of Taylor, and in particular its applicability to South Africa. The paper shows that its applicability in developing countries such as South Africa might be limited due to higher output volatility that may cause output‐sensitive deficit rules such as the Taylor rule to become more volatile. Such volatility in the deficit/GDP ratio may cause fears that government may not be able to maintain the stability of the debt/GDP ratio, thereby again introducing fiscal unsustainability. To address this problem the paper augments the Taylor rule to reduce the volatility in the public debt/GDP ratio and demonstrates how these rules would have performed in South Africa. It concludes that the augmented fiscal rule might contribute to both fiscal sustainability and economic stability in South Africa.     

Returning the State's assets to the private sector: A review of the case for privatisation

Privatisation is currently a globally topical and controversial issue. There are various approaches to privatisation all of which aim to shrink the extent of the public sector's activities, a sector whose performance has generally been unimpressive. The disillusionment with public sector enterprises has prompted many countries, including South Africa, to embark on a reform programme of selling off much of their state assets to the private sector. The underlying rationale is that scarce resources can more efficiently be allocated and accordingly goods and services more efficiently produced by the private sector than the public sector. Admittedly, privatisation can bring certain efficiency benefits, but it should not be considered as a panacea.

This paper seeks firstly to clarify the concept of privatisation: secondly, to analyse the benefits, drawbacks, implications and mechanics of privatisation; thirdly, to consider the case for privatisation in South Africa, and finally to examine certain policy guidelines.     

Financing minority economic development

Conclusions A close analysis of the capital-asset pricing model’s assumptions and implications for efficient allocation of resources to investment in capital assets can form the basis for changes in the way capital markets are regulated by the federal government and in taxing policy of the government. In particular, our analysis indicates that the value of currently marketed assets can be increased by the inclusion in portfolios of currently nonmarketed assets.Moreover, the value of nonmarketed assets emerges as a significant instrumental variable for policy makers.The government can increase the value of all currently marketed assets by increasing positive changes in the value of nonmarketed assets.This might be accomplished by requiring by legislation or rule, for example, that a certain proportion of the listed securities on any exchange be comprised of the securities of black firms and other firms whose securities are not now marketed.The government might want, by tax incentive, to promote investment in firms with nonmarketed assets.It might want to increase the funding level of institutions such as MESBIC’S supplying equality finance to small black firms.     

Money demand and stabilisation in Zimbabwe

During the 1980s the potential instability of Zimbabwe's unsustainablyhigh budget deficit was reduced by the smooth transfer of resourcesfrom the private to the public sector via the domestic financialsystem, which affected private demand for financial assets.Import, exchange and price controls operated to suppress private-sectordemand. This led to the build-up of private savings, which wason-lent to the government via liquid asset requirements andthe crowding out of domestic deposits in the nonbank privatesector's portfolio by government securities. This article usesJohansen's procedure for analysing cointegration to model thedemand for real money balances in Zimbabwe, in order to determinethe extent to which these constraints on the domestic assetmarket suppressed the demand for money in Zimbabwe.     

Managing leverage of infrastructure projects: Aggregate and sectoral risk effect

Funding for infrastructure projects recently shows that debt has a portion more than equity, triggering public debates. Therefore, leverage as an instrument to measure the ability and willingness of project sponsors to fund becomes the utmost importance to discuss. Relating to leverage, risk and government participation are two main factors that can explain the choice of funding decisions by the project sponsors. For this reason, this study would analyze the effect of risk and government participation on leverage through the two main sectors of infrastructure projects, namely the transportation sector and the energy sector, and derivating risk to political risk and financial risk. The objects of research were 976 infrastructure projects listed in the Asian Development Bank during 2007−2016. We use censored regression to examine the model by infrastructure sectors, both as individual and through interaction effects. The analysis showed that overall, leverage of infrastructure projects was rather influenced by financial risk than by political risk. However, the leverage of infrastructure projects in the transportation sector was more vulnerable to risk than that in other sectors.     

Financial Crises and Structural Change in English Commercial Bank Assets, 1860–1913

The focus of analysis is the relationship between short-term financial shocks and long-term changes in the asset structure of the commercial banks of England and Wales in the decades before World War I. New annual series are presented for the main categories of bank asset ratios and these are tested for structural change. The results emphasize the importance of the financial crises of 1878 and 1890 in the long-term increase in the liquidity of commercial bank assets as the banks shifted their holdings from private sector credits to public sector assets.     

Restructuring Indonesia's sub-national public debt: reform or reversion?

Borrowing can be an efficient way for sub-national governments to acquire capital assets, but it also carries risks of fiscal distress and insolvency for borrowers. To minimise these risks, many governments around the world have developed ex-post insolvency remedies, including, most importantly, debt-restructuring mechanisms. In an effort to resurrect borrowing for local infrastructure development, the Indonesian government has designed and begun to implement debt-restructuring programs for sub-national government and sub-national government-owned water supply company defaulters. These programs constitute a major effort to reform an important, long-neglected and problematic aspect of sub-national public finances in Indonesia. There are a number of potential difficulties with the design and execution of the reforms, however, which collectively do not inspire much optimism for rapid progress in reviving financial flows to the sub-national public sector. Still, even halting advances in debt restructuring can substantially increase local infrastructure investment in the long run.     

Contracting out by the public sector: theory, evidence, prospects

Unlike privatization, contracting out (or simply 'contracting')does not generally involve the sale of publicly owned assets.Yet it has been widely used as a mechanism for reform of public-sectorservice provision. Contracting introduces ex-ante competition-competitionfor the market through competitive tendering. This article examinesboth the theory and evidence of contracting by the public sector.It considers the theoretical conditions, such as contractualincompleteness and the ownership pf physical assets, which mayimpede efficient contracting. It also reviews the internationalevidence which suggests that savings in the order of 20 percent are achievable, without sacrificing the quality of serviceprovided. In the UK, savings of between £240m and £280mhave been estimated for contracts let at the central governmentlevel. Substantial savings have also been generated by contractingat the local government level.     

我国现行国有资产管理体制的缺陷及成因分析

在我国,长期计划经济体制的影响不可能在短时间内消除,在改革过程中,政治体制改革滞后。经济体制改革,政府与市场、政府与企业的关系还未理顺,这些深层次的因素使得我国现行国有资产管理体制存在缺陷。主要表现在:一是对国有资产及其类型化的理论认识不足;二是有关国有资产及其管理的法律制度建设还未形成科学体系;三是国有资产的产权管理仍未理清。只有构建符合我国国情的国有资产管理体制,按照市场经济的客观规律和现代法治办事,才能实现国有资产的目标和功能价值。     

对上海区县国资委职能定位的思考

文章将国有资产的监管方式分为三种,即公共监管、资产监管和出资监管.在此基础上分析了国资委职能定位与国资委监管范围的关系、国资委国有资产出资人职能与政府社会公共管理职能的关系,并指出在各级政府之间关于国资委职能定位有不同的探索、甚至不同的倾向是正常的.并在最后重点探讨了上海区县国资委职能定位的取向.     

The relationship between the real and financial economies in the Soviet Union: An analysis of government debts using newly available data

Newly available Soviet data reveal that government debt increased to compensate for inefficient use of funds for most of the Soviet period. Given the difficulty in managing fiat money without information and data generated by the market, and the simple Soviet financial structure, the increasing debt suggests that non-performing financial assets accumulated in the household sector, and inefficient real assets built up in the enterprise sector. The empirical analysis using a small time-varying parameter vector autoregression model identified that funds supplied to the economy had contributed at a decreasing rate to economic growth during nearly the entire Soviet period. Funds continued to be used wastefully, non-performing financial assets accumulated, and consequently the value of the ruble was decreasing. In this sense, Soviet monetary management was inefficient. Future research will include efforts to investigate responsiveness of price regulating authorities to changes in monetary and financial situation, to understand monetary management on the republic level, and to quantify the efficiency of use of funds.     

Public sector wage settlement and the threat of outsourcing

This paper investigates the impact of outsourcing on wage settlement in the public sector. The study characterizes the equilibrium wage offered by the public sector union to a government bureau competing against private sector firms. It is predicted that the union will offer a concession wage in an attempt to block outsourcing when its members' outside employment options are sufficiently unattractive and will offer a non-concession wage otherwise. The study contributes to the literature on outsourcing and wage determination in the public sector.     

WAGNER'S LAW REVISITED: A NOTE FROM SOUTH AFRICA

The aim of this note is to reassess the validity of Wagner's law for South Africa for the period 1950‐2007 using cointegration and causality tests. The evidence shows causality running from income to government expenditure, thus supporting the Wagnerian proposition of an expanding public sector. Using five different long‐run estimators, we found that the size of South Africa's public sector was positively and significantly related to South Africa's national income. The elasticity ranges from 1.12 to 1.57, implying that a 1% increase in income leads to a 1.12‐1.57% increase in government expenditure.     

Public Sector Growth in the British Cape Colony: Evidence From New Data on Expenditure and Foreign Debt, 1830-1910

The public expenditure shifts that took place following the discovery of diamonds and gold during the second half of the nineteenth century had far-reaching consequences for southern Africa’s development. Using new data for public expenditure and foreign debt in the Cape Colony and evidence from Cape parliamentary budget debates, we trace and explain the growth of the public sector. We find that the coincidence of mineral discovery in 1867 and the granting of responsible government status rapidly accelerated the growth of the public sector. Owing to strong mining interests, railways accounted for more than 70% of the public works expenditure from the 1880s onwards. Spending on human capital and welfare enhancement remained limited. Both the quantitative and qualitative evidence suggests that the mining elites managed to build coalitions that swayed public expenditure decisions towards self-serving ends.