Abstract
This study develops the link between output and fiscal corruption risk in public–private partnership (PPP) schemes and the government bailout rate of non-performing loans (NPLs). The model assumes that corruption is widespread in such public investment programs. The objective functions of the government and PPP firms include fiscal corruption risk, given that the PPP firm and tax inspector can ‘effectively’ negotiate bribes. The model solves for the optimal country output (i.e., aggregate productivity) according to the Lagrange method. Long-term prospects are introduced to solve the problem with commercial banks, as most PPPs borrow from commercial banks. The results reaffirm that tax policy can exacerbate the country’s output loss. Although the equilibria between aggregate productivity and the Laffer curve lack a direct link to fiscal corruption risk, their magnitude does and depends on the number of PPPs. The PPP transfer from the government in period 2 and the number of PPPs rather than government expenditure in period 1 and the Laffer curve (tax revenues) mainly determines the bailout rate of PPPs’ NPLs. The article concludes with suggestions to prevent tax evasion and fiscal corruption risk in PPP schemes by using a cluster of cooperation, and recommends further research into cultural aspects.
Highlights
The recent literature on fiscal policy demonstrates the role of fiscal corruption on tax evasion in quantifying its effects on state tax revenues. Camous and Gimber (2018) determine the effect of fiscal austerity and emphasise that the austerity measure can be based on aggregate productivity and the Laffer curve if an endogenous decrease in government spending is in the retrenchment process (Korpi & Palme, 2003) and the government implements fiscal austerity (Sau, 2018)
This study looks at public debt management, the bailout rate of nonperforming loans (NPLs) and the aggregate productivity in countries forging public–private partnerships (PPPs) when tax evasion is subject to fiscal corruption risk and when these countries consider the PPPs as an alternative for reducing public debt (Engel, Fischer, & Galetovic, 2013); (National Assembly, 2018)
This study examines whether a common device to implement fiscal austerity (i.e., h2) that restricts monetary supply to stabilise inflation based on supply side economics (Xi, 2017) can meet the height of the Laffer curve or a certain level of government expenditure ðG1Þ in period 1 (Camous & Gimber, 2018; Prati & Tressel, 2006)
Summary
This study looks at public debt management, the bailout rate of nonperforming loans (NPLs) and the aggregate productivity in countries forging public–private partnerships (PPPs) when tax evasion is subject to fiscal corruption risk (or constraint) and when these countries consider the PPPs as an alternative for reducing public debt (Engel, Fischer, & Galetovic, 2013); (National Assembly, 2018). The model in this study instead assumes that both the punishment rates for PPP firms and tax inspectors are embedded in fiscal policy and fiscal corruption risk, as Definition 3 explains in detail. The present study focuses on public debt management (i.e., determining the bailout rate of NPLs) in countries promoting PPP projects, for which both the punishment rates for the PPP firm and tax inspector are embedded in fiscal policy and the fiscal corruption risk.
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