Efficiency at a cost: How a fiscal rule on disbursement timelines shifted public investment towards repairs

Information from the abstract

Abstract How do fiscal rules influence the types of public investment governments undertake? This article studies whether a budget‐execution fiscal rule affects the composition of public investment by altering the incentives faced by implementing agencies. We examine Thailand's 2021 reform introducing a binding 1‐year disbursement deadline for investment budgets, replacing a previously flexible multi‐year execution framework. Although the reform aimed to accelerate budget execution, it also increased the implementation risks associated with complex projects. Empirically, we combine semi‐supervised text analysis with a quasi‐experimental research design. Using seeded Latent Dirichlet allocation (LDA), we classify more than 360,000 Thai‐language public investment projects as repair‐oriented or new construction. A difference‐in‐differences framework exploits variation in departments’ pre‐reform reliance on construction‐intensive investments to identify differential exposure to the disbursement constraint. We find that departments more exposed to the reform significantly increased their reliance on repair‐oriented projects that are faster and less risky to execute, while also improving their disbursement performance relative to less exposed departments. The results suggest that budget‐execution fiscal rules can generate unintended incentives that shift public investment towards lower risk projects. More broadly, the study highlights how fiscal rules shape not only how much governments invest, but also what they invest in.

Why this record is monitored

This record has an Impact Signal of 76/100 based on recency, source, collaboration, and bibliographic signals. It prioritizes monitoring and is not a judgment of research quality.

Related topics: Fiscal Policies and Political Economy · Fiscal Policy and Economic Growth · Economic and Fiscal Studies