Executive summary

The effective tool to create jobs is counter-cyclical spending on infrastructure. As the demand for private sector is weak, the government helps the people with jobs and also aggregate demand. Investments of infrastructure are divided into two parts:

1. Economic sectors include increasing efficiency in transportation, including roads, railways and waterways,
2. Social sectors such as education, water and sewage system.

Investments in a local scenario and their impact on development strategies lead to creation of more jobs, greater ownership, and can rapidly boost up the local economies. This is particularly applicable in times of crisis. Decentralized public investment should be favored where ever possible. It is very important to assess the resultant labour output of these investments with respect to its impact on direct as well as indirect and employment, not only to assess their productivity in short run, but also to assess the long run impact on growth and other subsidiary effects. There are number of infrastructure projects in low and medium-income countries which are financed fully or partially by IFI. Institutions like these should make an effort to allow for larger labour participation in infrastructure development. Fiscal decentralization can be defined as a two-dimensional policy:

1). Decentralization of tax instrument.

2). Decentralization of expenditure.

The relation between decentralization and government efficiency can be divided into two large areas:

a) The classical theory: There are three main contribution where this theory can be restricted, those are Tiebout’s model of local public good provision where decentralization coupled with mobile households solve the problem of the efficient provision of public goods. The second most influential contribution is of Oates’(1972) Decentralization Theorem that involves the tradeoff between centralized and decentralized provision of public goods in favour of former if average preferences across citizen of different region are equal. The theorem stresses on to maximize social welfare. And the last is Leviathan hypothesis where it shows the mechanism for constraining the expansionary tendencies of government mechanism.

b) The second generation theory: The effect of fiscal decentralization has been modeled to embody the political process and the possibility of asymmetric information across political agents.

Description of Policy Challenges

According to the paper, on an average major percentage of total stimuli package in infrastructure is spent in emerging economies as compared to developed economies. The policy-brief paper tried to link infrastructure spending to job creation across economies. In this section the paper mentioned the main challenge of gestation period of the infrastructure projects. It viewed the time differential in processing of such projects as a challenge, as it failed to produce the expected outcomes on the stipulated time during a crisis situation.

It later pointed out how infrastructures in different areas bear different results. Infrastructural Investment in rural area created more jobs than in urban areas as the jobs in rural areas are more labour intensive. It said, “The policy challenge is to match the targeting of infrastructure investments with the targeting of employment creation, be it by category or geographic area.”