The general idea is that if a critical mass of small investments is undertaken simultaneously the average social return will be much higher than the average private return, because they will create demand for each other, and overcome coordination failures that keep private market economies in a low-income equilibrium.

1. Public investments boost economy more than private ones
A new round of research in the last decade confirmed the large impact of public investment
on productivity growth. At the same time, the contribution of private investment to
productivity growth seems to be fading. The surest route to returning to the productivity
growth we enjoyed in the 60’ era and again in the 2000s requires a substantial increase in
public investments.
Investments in public capital have significant positive impacts on private-sector productivity,
with estimated rates of return ranging from 15 percent to upwards of 45 percent. Our
estimate is 30 percent, which coincidentally is roughly equivalent to the rate of return on
investment in information and communications technology.
A significantincreasein public investment spending would boost jobs in the short run and pay
enormous dividends in more rapid productivity growth in coming decades. In contrast, the
payoff to spending cuts would be depressed job growth in the next few years and foregone
productivity gains in the longer run.
In the short run, while the economy continues to operate well below potential, the public
investment should be debt-financed to maximize job creation. In the long run, as the economy
returns to potential, the proper financing for these projects will depend on the economic
circumstances prevailing at the time. If the returns to public investment are large enough,
then they can unambiguously improve the welfare of both present and future generations
even if they are debt-financed. What is even more important over the long term it is not the
fact how they are financed, but how they get done.
Policy debates today are dominated by claims that the budget deficitneeds to be substantially
reduced. The decrease of economic growth in these last years has been so slow and difficult,
is shown to public debt and performing loans that are in the worst position of historic values
in the last two decades.
Given the fact that economy is operating far below potential, and is likely to do so for years
to come absent aggressive policy measures to boost it, such rapid fiscal contraction is
extremely unwise.
But, the big concern for the budget it is the lack of money, because of old debts problem and
also because of not good performance of revenues collection.

2. In fact, the recent experiences of international concerns that accompanied the budget deficits
clearly indicate that as many continue to exist such a situation, the more countries in
situations of public debt of the Albania have time to think to solve obstacles debt financing
instrument of overt money financing.
Overt money financing seems to be more effective because it does not leave the budget
struggling with the question of what to do about future public debt burdens, nor create the
danger that the anticipation of those future debt burdens will induce a Ricardian equivalent
offset to nominal demand stimulus today.
The introduction of this extraordinary instrument need to be part of broad debate between
financial institutions, Bank of Albania and Ministry of Finance. All the process should be
analyse the pros and cons of the better policies to solve the problem of lacking public funds
for investments and social bills, and also to see what’s next for the public debt.
But, let’s see what about the investment issues.
Further, if public investment is a casualty of this rush to cut spending, as it almost surely will
be, then this policy trajectory is even more perverse. Consider the standard economic
rationale that justifies reduction of budget deficits. When an economy is operating at or near
potential, reducing budget deficits should lead to downward pressure on interest rates, as
the public sector is no longer competing with the private sector for loanable funds. Lower
interest rates should then allow private firms to undertake more investment in plants and
equipment, and this subsequent “capital deepening” should boost productivity.
Too often, discussions of investment, capital stocks, and productivity assume that private-
sector decisions are the dominant force behind the movement of these variables. Note first
the overwhelmingly large importance of education, a sector funded significantly by the public
sector. Note also that public capital accounts for more than a third of all nonresidential
structures and equipment capital. In short, the wealth of the nation (i.e., the human and
physical capital that can be mobilized to produce goods and services) is crucially dependent
upon public investments and public capital.

3. Allowing these public capital stocks to wither so that funds can be available for private capital
formation would be a calamitous assault on productive capacity, productivity, and
competitiveness.
It is sometimes argued that even if increased public investment can increase an economy’s
growth performance, the necessary financing of the investment may introduce economic
distortions that reduce growth. If so, it matters not just how much public investment is
undertaken but also how it is financed.
The concern is that, if these investments are financed with increased debt or higher taxes,the
efficiency losses induced by the crowding-out of private-sector investment, or by higher tax
rates, may produce a net loss to economic growth. But there is little cause for this concern,
for several reasons.
A big program of public investment can achieve a big push itself or can stimulate numerous
further private investments that together constitute a big push. On the other hand, there are
reasons to expect the opposite, a lower impact of the booms than the average. One is a
perverse selection effect.
The on-the-shelf government investment projects that are pulled off-the-shelf once a major
increase in spending is announced may be precisely those that were previously rejected on
grounds of low impact. Hence a surge may selectrelatively-poor public investments. Rejected
projects are likely to have the advantage of having already passed the feasibility stage of
analysis and can thus be implemented quickly. More important, they are likely to still have
constituencies that favored them within the bureaucracy.
The second reason for lower-than average impact of booms is that booms can change the
behavior of governments. A government that rationally analyzes investments when the
money is tight has less incentiveto do so when money is loose. Specialinterest group pressure
can be more influential as other constraints become less binding, such as the budget. A third
reason to expect that the impact of changes is different is diminishing returns to additional
capital. Additional roads added to a basic road network may have less impact that the initial
roads that opened up access to major regions of the country.

4. The general idea is that if a critical mass of small investments is undertaken simultaneously
the average social return will be much higher than the average private return, because they
will create demand for each other, and overcome coordination failures that keep private
market economies in a low-income equilibrium.
November 2016,
Tirana, ALBANIA
Eduart GJOKUTAJ