During the 1980s and 1990s, many governments, under the argument of the increased efficiency of firms under private management, privatized utilities and spent the proceedings. Similarly, many governments chose to use PPPs for new infrastructure for two reasons: first, they believed that PPPs relaxed constraints on government budgets; second, under fiscal accounting rules that applied at the time, this organizational form allowed them to circumvent budgetary controls on public investment. In this chapter we show that the first belief is incorrect and PPPs do not relax the fiscal budget constraint. Moreover, we present evidence showing that governments used PPPs to evade budgetary controls on spending. We also provide specific fiscal accounting proposals to eliminate this possibility.

Fiscal Accounting

One of the drivers of PPPs is that governments want to indulge in public works even when restricted by budgetary constraints (see Box 6.1 for examples). For this reason, organizations that set accounting standards have struggled to determine when a PPP project should be included on the balance sheet of the public sector.