Changes in Economic Effect of Infrastructure and Financing Methods

This paper analyzes the recent changes in the economic effect of infrastructure focusing on the productivity effect of public investment among a declining trend in public investment, and discusses how to promote the spending of private-sector money for infrastructure investment through the creation of incentive mechanisms. In secondary and tertiary industries, the marginal productivity of public capital has declined in many regions of Japan, but even in recent years, there have still been positive productivity effects from public capital. Since the beginning of the 2000s until today, although the regional allocation of public investment has changed, the structure of regional disparity in the productivity effect of public capital has remained unchanged. The important factors for further promoting the use of private sector resources in infrastructure development include: (1) governmental involvement in high-risk infrastructure projects, (2) an earnings structure that appropriately reflects the economic effect of infrastructure (e.g. return of the part of spillover tax revenues to infrastructure investors) and (3) systems designed to increase incentives for infrastructure-operating entities.