Servén, Luis2012-06-082012-06-082007-11https://hdl.handle.net/10986/7543Solvency is an intertemporal concept, relating to the present value of revenues and expenditures, and encompassing both assets and liabilities. But the standard practice among policy makers, financial market participants and international financial institutions is to assess the strength of the fiscal accounts solely on the basis of the cash deficit. Short-term cash flows matter, but a preponderant focus on them can encourage governments to invest too little, especially during episodes of fiscal tightening. This has potentially adverse consequences for growth and, paradoxically, even for fiscal solvency itself. The paper offers an overview of the links between fiscal targets, public investment, and public sector solvency. After reviewing the international experience with public investment under fiscal adjustment, the paper lays out an analytical framework to illustrate the consequences of using the public deficit as a guide to solvency. The paper then discusses some alternatives to conventional cash deficit rules and their implications for investment and fiscal solvency.CC BY 3.0 IGOACCOUNTINGACCRUAL ACCOUNTINGADVERSE CONSEQUENCESAGGREGATE DEMANDASSET ACCUMULATIONBALANCE SHEETBANK POLICYBIASESBORROWING REQUIREMENTBRIBESBUDGET BALANCEBUDGET CONSTRAINTBUDGET DEFICITSBUDGETARY ACCOUNTINGBUDGETARY INSTITUTIONSCAPACITY ENHANCEMENTSCAPITAL ACCUMULATIONCAPITAL ASSETSCAPITAL BUDGETCAPITAL EXPENDITURECAPITAL FORMATIONCAPITAL SPENDINGCAPITAL STOCKCAPITAL STOCKSCASH BALANCECASH DEFICITCASH FLOWCASH FLOWSCHECKSCONTINGENT LIABILITIESCORPORATE FINANCECOST OF CAPITALCOST-BENEFIT ANALYSISCURRENT ACCOUNTDEBTDEBT ACCUMULATIONDEBT DEFAULTDEBT DYNAMICSDEBT FINANCEDEBT ISSUANCEDEBT ISSUEDEBT RATIODEFAULT PREMIUMDEFICITSDEPRECIATIONDERIVATIVEDEVELOPING COUNTRIESDISCOUNT RATEDISCOUNT RATESECONOMIC DEVELOPMENTECONOMIC GROWTHECONOMIC POLICYEFFECTS OF CORRUPTIONEFFICIENCY GAINSENDOWMENTSEQUALITYEXPENDITUREEXPENDITURESFACE VALUEFINANCIAL MARKETFINANCIAL MARKET PARTICIPANTSFINANCIAL MARKETSFINANCIAL POLICYFINANCIAL RATE OF RETURNFINANCING NEEDSFISCAL ACCOUNTSFISCAL ADJUSTMENTFISCAL AGGREGATESFISCAL AUSTERITYFISCAL AUTHORITIESFISCAL CONSEQUENCESFISCAL DEFICITFISCAL DISCIPLINEFISCAL MANAGEMENTFISCAL PERFORMANCEFISCAL POLICYFISCAL POLICY FRAMEWORKFISCAL PROJECTIONSFISCAL RETRENCHMENTFISCAL REVENUEFISCAL RULESFISCAL STABILITYFISCAL STRATEGIESFISCAL SUSTAINABILITYFISCAL TARGETSFISCAL TRANSPARENCYFUTURE CASH FLOWSFUTURE GROWTHFUTURE INCOMEGOLDEN RULEGOVERNMENT BORROWINGGOVERNMENT BUDGETGOVERNMENT BUDGETSGOVERNMENT DEFICITGOVERNMENT EXPENDITUREGOVERNMENT EXPENDITURESGOVERNMENT GUARANTEESGOVERNMENT INDEBTEDNESSGOVERNMENT REVENUEGOVERNMENT SPENDINGGROSS DEBTGROWTH MODELGROWTH RATEHOLDINGHUMAN CAPITALINCOME DISTRIBUTIONINCOME GROWTHINDEBTEDNESSINEQUALITYINFLATIONINFRASTRUCTURE DEVELOPMENTINFRASTRUCTURE INVESTMENTINFRASTRUCTURE PROJECTSINITIAL DEBTINITIAL INVESTMENTINTEREST PAYMENTSINTEREST RATESINTERNATIONAL BANKINTERNATIONAL DEVELOPMENTINTERNATIONAL FINANCIAL INSTITUTIONSINVESTMENT EXPENDITUREINVESTMENT FLOWSINVESTMENT OPPORTUNITIESINVESTMENT PROJECTSINVESTMENT RATEINVESTMENT RISKINVESTMENT SPENDINGLIQUIDITYLONG-RUN DEBTMACROECONOMIC EFFECTSMACROECONOMIC IMPACTMACROECONOMIC MODELMACROECONOMIC STABILITYMARGINAL COSTMARKET PRICEMEMBER COUNTRIESMONETARY FUNDNATIONAL ACCOUNTSNEGATIVE VALUESNET INVESTMENTNET LENDINGOPERATING COSTSOPPORTUNISTIC BEHAVIOROPTIMAL CHOICEOUTPUT RATIOOUTSTANDING DEBTOUTSTANDING DEBT STOCKPENSIONSPERFORMANCE INDICATORSPHYSICAL ASSETPOLITICAL ECONOMYPRESENT VALUEPRIVATE CAPITALPRIVATE INVESTMENTPRIVATE INVESTORSPRIVATE SECTORPRIVATIZATIONPROGRAMSPUBLIC ASSETSPUBLIC CAPITALPUBLIC CONSUMPTIONPUBLIC DEBTPUBLIC DEBT STOCKPUBLIC DEFICITPUBLIC DEFICITSPUBLIC ECONOMICSPUBLIC EXPENDITUREPUBLIC EXPENDITURESPUBLIC FINANCEPUBLIC FINANCESPUBLIC GOODSPUBLIC INFRASTRUCTUREPUBLIC INVESTMENTPUBLIC INVESTMENT PROGRAMPUBLIC PROCUREMENTPUBLIC REVENUEPUBLIC REVENUESPUBLIC SECTORPUBLIC SECTOR BORROWINGPUBLIC SECTOR NET WORTHPUBLIC SERVICEPUBLIC SERVICESPUBLIC SPENDINGRATE OF RETURNRATES OF RETURNREAL GROWTHREAL GROWTH RATEREAL INTERESTREAL INTEREST RATEREAL INTEREST RATESRESEARCH ASSISTANCERETURNRETURNSSANITATIONSELF-FINANCINGSERVICE PROVISIONSOLVENCYSTABILIZATION POLICIESSTOCKSTAXTAX BASETAX BASESTAX COLLECTIONTAX POLICYTAX RATETAX RATESTAX REVENUETAX REVENUESTAX SYSTEMTAXPAYERSTELECOMMUNICATIONSTRANSACTIONTRANSPARENCYTREASURYTYPES OF EXPENDITURESUNCERTAINTYUNIONUSER FEEUSER FEESWAGESWELFARE LOSSWorld Bank10.1596/1813-9450-4382