Structural Transformation: Public Investment, Fiscal and Monetary Policy – Christopher Adam
Once the protection of citizens is secured, the fiscal policy debate is concerned with what goods and services the state should provide; how these should be financed and how the state should seek to regulate private markets. This pathfinding paper is principally concerned with the macroeconomic dimensions of this debate. From the macroeconomic perspective, we can think of fiscal policy operating along three principal axes. First, the direct provision of public services and transfers motivated by the need to address market failures, supply public goods and resolve distributional considerations between groups and generations. Second, the indirect pursuit of the same objectives through the provision of public infrastructure, including physical and human capital. Finally, the third function is the use of fiscal policy instruments in support of macroeconomic stabilization. Along all three axes, government actions alter the incentives and constraints shaping private sector choices
This naturally leads to a number of questions, both positive and normative in nature. How does the scale and composition of government activity change as societies undergo structural transformation? Through what combination of tax, domestic debt, money, or external financing do governments fund this activity? How does this shift over time given changes to aid, the external fiscal environment and the demographic profile of the country among others. With these considerations as a background, this pathfinding paper will be organised around three broad themes: public investment, which will consider expenditure composition, revenue mobilisation and external finance; fiscal dynamics, which will examine how institutions can encourage more responsible fiscal policy; and monetary policy, which will look at the indirect effects monetary policy has on long-run growth and the fiscal sphere.