Public Private Partnership and fiscal illusion: A systematic review

Alessandra Cepparulo, Giuseppe Eusepi, Luisa Giuriato

Abstract


Public-Private Partnerships (PPPs) are mostly presented as a means to introduce efficient procurement methods and better value for money to taxpayers. However, the complexity of the PPP mechanism, their lack of transparency, accounting rules and implicit liabilities make it often impossible to perceive the amount of public expenditure involved and the long-run impact on taxpayers, providing room for fiscal illusion, i.e., the illusion that PPPs are much less expensive than traditional public investments. This psaper, thanks to a systematic review of the literature on the EU countries experience, tries to unveil the sources of this illusion by looking at the reasons behind the PPPs’ choice, their real costs, and the sources of fiscal risks. The literature suggests that PPPs are more costly than public funding, especially when contingent liabilities are not taken into account, and are employed as mechanisms to circumvent budgetary restrictions and to spend off-balance. The paper concludes that the public sector should share more risks with private sectors by reducing the amount of guarantees, and should prevent governments from operating through a sleight of hand that deflects attention away from off-balance financing, by applying a neutral fiscal recording system.


Keywords


PPPs; systematic literature review; off-balance accounting; budget constraints; fiscal risks

Full Text:

PDF

References


Acerete B, Shaoul J and Stafford A (2009). Taking its toll: The private financing of roads in Spain. Public Money and Management, 29(1): 19-26. https://doi.org/10.1080/09540960802617327.

Acerete JB, Shaoul J, Stafford A and Stapleton P (2010). The cost of using private finance for roads in Spain and the UK. Australian Journal of Public Administration, 69(s1): S48-S60. https://doi.org/10.1111/j.1467-8500.2009.00654.x.

Acerete B, Stafford A and Stapleton P (2011). Spanish healthcare public private partnerships: The ‘Alzira model’. Critical Perspectives on Accounting, 22(6): 533-549. https://doi.org/10.1016/j.cpa.2011.06.004.

Acerete B, Gasca M and Stafford A. (2019). Two decades of DBFO roads in the UK and Spain: An evaluation of the financial performance. Annals of Public and Cooperative Economics, 90(2): 269-289. https://doi.org/10.1111/apce.12237.

Akbiyikli R, Dikmen SU and Eaton D (2011). Financing road projects by private finance initiative: Current practice in the UK with a case study. Transport, 26(2): 208-215. https://doi.org/10.3846/16484142.2011.589426.

Andon P (2012). Accounting-related research in PPPs/PFIs: Present contributions and future opportunities. Accounting, Auditing and Accountability Journal, 25(5): 876-924. https://doi.org/10.1108/09513571211234286.

Antellini Russo F and Zampino R (2012). Infrastructures, public accounts and public-private partnerships: Evidence from the Italian local administrations. Reviews of Economics and Institutions, 3(1). https://doi.org/10.5202/rei.v3i1.61.

Aslan C and Duarte D (2014). How do countries measure, manage, and monitor fiscal risks generated by public-private partnerships? Chile, Peru, South Africa, Turkey. Policy Research Working Paper 7041. Washington, DC: World Bank.

Bain R (2010). Public sector comparators for UK PFI roads: Inside the black box. Transportation, 37: 447‒471.

Bao F, Chan APC, Chen C and Darko A (2018). Review of public-private partnership literature from a project lifecycle perspective. Journal of Infrastructure Systems, 24(3). https://doi.org/10.1061/(ASCE)IS.1943-555X.0000424.

Bel G and Fageda X (2007). Why do local governments privatise public services? A survey of empirical studies. Local Government Studies, 33(4): 517-534. https://doi.org/10.1080/03003930701417528.

Benito B, Montesinos V and Bastida F (2008). An example of creative accounting in public sector: The private financing of infrastructures in Spain. Critical Perspectives on Accounting, 19(7): 963-986.

Bennett J and Iossa E (2006). Building and managing facilities for public services building and managing facilities for public services. Journal of Public Economics, 90(10-11): 2143-2160. https://doi.org/10.1016/j.jpubeco.2006.04.001.

Bergere F (2016). Ten years of PPP: An initial assessment. OECD Journal on Budgeting, 15(1): 31-123. https://doi.org/10.1787/budget-15-5jm3rx2qbxbq

Blanc-Brude F, Goldsmith H and Välilä T (2009). Review of Industrial Organization, 35:19-40. https://doi.org/10.1007/s11151-009-9224-1

Bova E, Ruiz-Arranz M, Tascani F and Ture E (2016). The fiscal costs of contingent liabilities: A new dataset. IMF Working Paper. Washington, DC: IMF.

Broadbent J and Laughlin R (2002). Accounting choices: Technical and political trade-offs and the UK’s private finance initiative. Accounting, Auditing & Accountability Journal, 15(5): 622-654. https://doi.org/10.1108/09513570210448948.

Budina N, Brixi HP and Irwin T (2007). Public-private partnerships in the new EU member states: Managing fiscal risks. World Bank Working Paper No. 114. Washington, DC: World Bank. https://doi.org/10.1596/978-0-8213-7153-4.

Burger P and Hawkesworth I (2011). How To Attain Value for Money: Comparing PPP and Traditional Infrastructure Public Procurement. OECD Journal on Budgeting, 2011(1). https://doi.org/10.1787/budget-11-5kg9zc0pvq6j.

Buso M, Marty F and Tran PT (2016). Public-private partnership from budget constraints: Looking for debt hiding? International Journal of Industrial Organization, 51: 56-84. https://doi.org/10.1016/j.ijindorg.2016.12.002.

Cabrera M, Suárez-Alemán A and Trujillo L (2015). Public-private partnerships in Spanish ports: Current status and future prospects. Utilities Policy, 32: 1-11. https://doi.org/10.1016/j.jup.2014.11.002.

Carbonara N, Costantino N, Gunnigan L and Pellegrino R (2015). Risk Management in Motorway PPP Projects: Empirical-based Guidelines, Transport Reviews, 35(2): 162-182. https://doi.org/10.1080/01441647.2015.1012696.

Carpintero S and Siemiatycki M (2016). The politics of delivering light rail transit projects through public-private partnerships in Spain: A case study approach. Transport Policy, 49: 159-167. https://doi.org/10.1016/j.tranpol.2016.05.001.

Casady C, Flannery D, Geddes RR, Palcic D and Reeves E (2019). Understanding PPP Tendering Periods in Canada: A Duration Analysis, Public Performance & Management Review, 42(6): 1259-1278. https://doi.org/10.1080/15309576.2019.1597739.

Cebotari A, Davis JM, Lusinyan L, Mati A, Mauro P, Petrie M and Velloso R (2009). Fiscal Risks. Sources, Disclosure, and Management. Whashington:IMF.

Chiara N, and Kokkaew N (2013). Alternative to Government Revenue Guarantees: Dynamic Revenue Insurance Contracts. Journal of Infrastructure Systems, 19(3): 287-296. https://doi.org/10.1061/(ASCE)IS.1943-555X.0000145.

Cruz CO and Marques RC (2011). Revisiting the Portuguese experience with public-private partnerships. African Journal of Business Management, 5(11): 4023-4032. https:/doi.org/10.5897/AJBM10.1408.

Cui C, Liu Y, Hope A and Wang J (2018). Review of studies on the public-private partnerships (PPP) for infrastructure projects. International Journal of Project Management, 36(5): 773-794. https://doi.org/10.1016/j.ijproman.2018.03.004.

De Marco A, Mangano G, Cagliano AC and Grimaldi S (2012). Public financing into build-operate-transfer hospital projects in Italy. Journal of Construction Engineering and Management, 138(11): 1294-1302. https://doi.org/10.1061/(asce)co.1943-7862.0000545.

Demirag I, Khadaroo I, Stapleton P and Stevenson C (2012). The diffusion of risks in public private partnership contracts. Accounting, Auditing & Accountability Journal, 25(8): 1317-1339. https://doi.org/10.1108/09513571211275498.

Downs A (1957). An Economic Theory of Democracy. New York, NY: Harper & Row.

Dutz M, Harris C, Dhingra I, and Shugart C (2006). Public-Private Partnership Units: What Are They, and What Do They Do?. Washington, DC: World Bank.

Engel E, Fischer R and Galetovic A (2013). The basic public finance of public-private partnerships. Journal of the European economic association, 11(1): 83-111. https://doi.org/10.1111/j.1542-4774.2012.01105.x.

EPEC (2018). Market Update Review of the European PPP Market in 2018. Luxembourg.

Eurostat-EPEC-BEI (2016). A Guide to the Statistical Treatment of PPPs September 2016. Luxembourg.

Fernandes C, Ferreira M and Moura F (2015). PPPs — True Financial Costs and Hidden Returns. Transport Reviews, 36(2): 207-227. http://dx.doi.org/10.1080/01441647.2015.1076905.

Froud J and Shaoul J (2001). Appraising and evaluating PFI for NHS hospitals. Financial Accountability & Management, 17(3): 247-270. https://doi.org/10.1111/1468-0408.00130.

Gaffney D, Pollock AM, Price D and Shaoul J (1999). NHS capital expenditure and the private finance initiative — Expansion or contraction? BMJ, 319: 48-51. https://doi.org/10.1136/bmj.319.7201.48.

Henckel T and McKibbin WJ (2017). The economics of infrastructure in a globalized world: Issues, lessons and future challenges. Journal of Infrastructure, Policy and Development, 1(2): 254-271. https://doi: 10.24294/jipd.v1i2.55.

HM Treasury (2018). PFI and PF2. HC 718 Session 2017-2019. London: HM Treasury.

Hodge GA and Greve C (2009). PPPS: The passage of time permits a sober reflection. Economic Affairs, 29(1): 33-39. https://doi.org/10.1111/j.1468-0270.2009.01864.x.

Hodges R and Mellett H (2012). The U.K. private finance initiative: An accounting retrospective. The British Accounting Review, 44(4): 235-247. https://doi.org/10.1016/j.bar.2012.09.005.

IMF (2004). Public-Private Partnerships. Washington, DC: IMF.

___ (2012). Fiscal Transparency, Accountability and Risk, IMF Policy Paper. Washington, DC:IMF

___ (2015). Making public investment more efficient. Staff Report. Washington, DC: IMF.

Iossa E and Martimort D (2015). The simple microeconomics of public-private partnerships. Journal of Public Economic Theory, 17(1): 4-48. https://doi.org/10.1111/jpet.12114.

Irwin DE, Milá B, Toews DPL, Brelsford A, Kenyon HL, Porter AN, Grossen C, Delmore KE, Alcaide M and Irwin JH (2018). A comparison of genomic islands of differentiation across three young avian species pairs. Molecular ecology, 27(23): 4839-4855. https://doi.org/10.1111/mec.14858.

Ismail S and Pendlebury M (2006). The Private Finance Initiative (PFI) in schools: The experiences of users. Financial Accountability & Management, 22(4): 381-404. https://doi.org/10.1111/j.1468-0408.2006.00431.x.

Ke Y, Wang SQ, Chan APC and Cheung E (2009). Research trend of public-private partnership in construction journals. Journal of Construction Engineering and Management, 135(10): 1076-1086. https://doi.org/10.1061/(ASCE)0733-9364(2009)135:10(1076).

Khadaroo I (2008). The actual evaluation of school PFI bids for value for money in the UK public sector. Critical Perspectives on Accounting, 19: 1321-1345. https://doi.org/10.1016/j.cpa.2007.05.001.

Lewis CM and Mody A (1997). The management of contingent liabilities: A risk management framework for national governments. In: Irwin T et al. (eds). Dealing with Public Risk in Private Infrastructure. Washington, DC: World Bank. 131-153.

Liyanage C and Villalba-Romero F (2015). Measuring Success of PPP Transport Projects: A Cross-Case Analysis of Toll Roads. Transport Reviews, 35(2): 140-161. https://doi.org/10.1080/01441647.2014.994583.

Maskin E and Tirole J (2008). Public-Private Partnerships and Government Spending Limits. International Journal of Industrial Organization, 26 (2): 412-420. https://doi.org/10.1016/j.ijindorg.2007.05.004.

Mazzola F, Cusimano A, Di Giacomo G and Epifanio R (2019). Local and territorial determinants in the realization of public-private-partnerships: An empirical analysis for Italian provinces. European Planning Studies, 27(11): 2266-2287. https://doi.org/10.1080/09654313.2019.1640187.

Moles P and Williams G (1995). Privately funded infrastructure in the UK: Participants' risk in the Skye Bridge project. Transport Policy, 2(2): 129-134. https://doi.org/10.1016/0967-070X(95)91992-S.

Mota J and Moreira AC (2015). The importance of non-financial determinants on public-private partnerships in Europe. International Journal of Project Management, 33(7): 1563-1575. https://doi.org/10.1016/j.ijproman.2015.04.005.

Mühlenkamp, Holger (2014). Public-Private Partnerships and Government Debt, CESifo DICE Report, ISSN 1613-6373, 12(3): 24-30.

Musgrave RA and Musgrave PB (1988). Fiscal churning. In: Brennan G et al. (eds.), Taxation and Fiscal Federalism: Essays in Honour of Russell Mathews. Canberra, Australia: Australian National University Press, 14-28.

Neto DDCES, Cruz CO, Rodrigues F and Silva P (2016). Bibliometric analysis of PPP and PFI literature: Overview of 25 years of research. Journal of Construction Engineering and Management, 142(10): 06016002. https://doi.org/10.1061/(ASCE)CO.1943-7862.0001163.

Osei-Kyei R and Chan APC (2015). Review of studies on the critical success factors for public-private partnership (PPP) projects from 1990 to 2013. International Journal of Project Management, 33(6): 1335-1346. https://doi.org/10.1016/j.ijproman.2015.02.008.

Parker D and Hartley K (2003). Transaction costs, relational contracting and public private partnerships: a case study of UK defence. Journal of Purchasing and Supply Management, 9(3): 97-108. https://doi.org/10.1016/S0969-7012(02)00035-7.

Petersen OH (2010). Regulation of public-private partnerships: The Danish case. Public Money & Management, 30(3): 175-182. https://doi.org/10.1080/09540961003794345.

___________(2019). Evaluating the costs, quality, and value for money of infrastructure public‐private partnerships: a systematic literature review. Annals of Public and Cooperative Economics, 90(2) Special Issue: The Performance and Potential of Public Private Partnerships: 227-244.

Puviani A (1897). Teoria della Illusione nelle Entrate Pubbliche. Unione Tipografica Cooperativa.

__________ (1903). Teoria della Illusione Finanziaria. Sandron.

Pollock AM and Price D (2008). Has the NAO audited risk transfer in operational private finance initiative schemes. Public Money & Management, 28(3): 173-178. https://doi.org/10.1111/j.1467-9302.2008.00640.x.

Pollock AM, Shaoul J and Vickers N (2002). Private finance and “value for money” in NHS hospitals: A policy in search of a rationale? BMJ, 324(7347): 1205-1209. https://doi.org/10.1136/bmj.324.7347.1205.

Porcher S (2017). The ‘hidden costs’ of water provision: New evidence from the relationship between contracting-out and price in French water public services. Utilities Policy, 48: 166-175. https://doi.org/10.1016/j.jup.2017.08.002.

Reeves E and Ryan J (2007). Piloting public-private partnerships: Expensive lessons from Ireland’s schools’ sector. Public Money & Management, 27(5): 331-338. https://dx.doi.org/10.1111/j.1467-9302.2007.00604.x.

Reeves E (2013). The not so good, the bad and the ugly: Over twelve years of PPP in Ireland. Local Government Studies, 39(3): 375-395. https://doi.org/10.1080/03003930.2013.781023.

__________ (2015). A review of the PPP experience in Ireland: Lessons for comparative policy analysis. Journal of Comparative Policy Analysis: Research and Practice, 17(5): 467-480. https://doi.org/10.1080/13876988.2015.1023018.

Reeves E, Palcic D and Flannery D (2015). PPP Procurement in Ireland: An Analysis of Tendering Periods. Local Government Studies, 41(3): 379-400. https://doi.org/10.1080/03003930.2014.982108.

Reyes-Tagle G and Kyeong EH (2018). Fiscal implications of PPP. In: Reyes-Tagle G (ed.), Bringing PPPs into the Sunlight: Synergies Now and Pitfalls Later? Washington, DC: IADB. https://doi.org/10.18235/0001240.

Roehrich JK, Lewis MA and George G (2014). Are public-private partnerships a healthy option? A systematic literature review. Social Science and Medicine, 113: 110-119. https://doi.org/10.1016/j.socscimed.2014.03.037.

Shaoul J (2005). A critical financial analysis of the Private Finance Initiative: Selecting a financing method or allocating economic wealth? Critical Perspectives on Accounting, 16: 441-471. https://doi.org/10.1016/j.cpa.2003.06.001.

Shaoul J, Stafford A and Stapleton P (2006). Highway robbery? A financial analysis of Design, Build, Finance and Operate (DBFO) in UK roads. Transport Reviews, 26(3): 257-274. https://doi.org/10.1080/01441640500415243.

__________ (2008). The cost of using private finance to build, finance and operate hospitals. Public Money & Management, 28(2): 101-108. https://doi.org/10.1111/j.1467-9302.2008.00628.x.

__________ (2010). Financial black holes. The disclosure and transparency of privately financed roads in the UK. Accounting, Auditing & Accountability Journal, 23(2): 229-255. https://doi.org/10.1108/09513571011023200.

__________ (2012). Accountability and corporate governance of public private partnerships. Critical Perspectives on Accounting, 23(3): 213-229. https://doi.org/10.1016/j.cpa.2011.12.006.

Smith EM and Thomasson A (2018). The use of the partnering concept for public-private collaboration: How well does it really work? Public Organization Review, 18(2): 191-206. https://doi.org/10.1007/s11115-016-0368-9.

Spackman M (2002). Public-private partnership: Lessons from the British approach. Economic Systems, 26(3): 283-301. https://doi.org/10.1016/S0939-3625(02)00048-1.

Stafford A, Acerete B, and Stapleton P (2010). Making Concessions: Political, Commercial and Regulatory Tensions in Accounting for European Roads PPPs. Accounting and Business Research, Journal Accounting and Business Research, 40(5): 473-493. https://doi.org/10.1080/00014788.2010.9995324.

Toms S, Beck M and Asenova D (2011). Accounting, regulation and profitability: The case of PFI hospital refinancing. Critical Perspectives on Accounting, 22(7): 668-681. https://doi.org/10.1016/j.cpa.2011.01.010.

Torchia M, Calabrò A and Morner M (2015). Public-private partnerships in the health care sector: A systematic review of the literature. Public Management Review, 17(2): 236-261. https://doi.org/10.1080/14719037.2013.792380.

Torres L and Pina V (2001). Public-private partnership and private finance initiatives in the EU and Spanish local governments. European Accounting Review, 10(3): 601-619. https://doi.org/10.1080/09638180120081607.

Välilä T (2005). How expensive are cost savings? On the economics of public-private partnerships. EIB Papers, 10(1): 94-119.

van den Hurk M (2018). Public-private partnerships: Where do we go from here? A Belgian perspective. Public Works Management & Policy, 23(3): 274-294. https://doi.org/10.1177/1087724X18757534.

Wang H, Xiong W, Wu G and Zhu D (2018). Public-private partnership in Public Administration discipline: A literature review. Public Management Review, 20(2): 293-316. https://doi.org/10.1080/14719037.2017.1313445.

World Bank (2013). Financing for development post-2015. Washington, DC: World Bank.

Xiong W, Chen B, Wang H and Zhu D (2018). Governing public-private partnerships: A systematic review of case study literature. Australian Journal of Public Administration, 78(1): 95-112. https://doi.org/10.1111/1467-8500.12343.

Yescombe ER and Farquharson E (2018). Public-Private Partnerships for Infrastructure. Principles of Policy and Finance. Oxford, UK: Elsevier.




DOI: http://dx.doi.org/10.24294/jipd.v3i2.1157

Refbacks

  • There are currently no refbacks.


Copyright (c) 2019 Alessandra Cepparulo, Giuseppe Eusepi, Luisa Giuriato

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

Creative Commons License
This site is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.