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New Public Economics Findings from Tel Aviv University Discussed (Government's credit-rating concerns and the evaluation of public projects)

August 21, 2014

By a News Reporter-Staff News Editor at Politics & Government Week -- Current study results on Public Economics have been published. According to news reporting originating in Tel Aviv, Israel, by VerticalNews journalists, research stated, "Public projects typically generate both monetary revenue and social benefits that cannot be monetized. We show that a government concerned with the credit rating of its debt should put different discount rates on these two aspects."

The news reporters obtained a quote from the research from Tel Aviv University, "The credit rating reflects the probability of default on the government's debt and thus affects its financing costs. Monetary revenues, which can be used in financial distress to repay debt, improve the credit rating and thus carry an additional 'credit-market value' compared to social benefits. However, informational problems dynamic inconsistency and adverse selection - push the government to an excessive emphasis on social benefits, ignoring the external effect of monetary revenue on debtholders. Since the credit market anticipates this, the government's credit rating is adversely affected and it is thus unable to extract the full potential value of the projects."

According to the news reporters, the research concluded: "Privatization can sometimes alleviate these problems; However, the option to privatize has complex effects on the market's assessment of projects that remain in government's hands and thus might sometimes be harmful."

For more information on this research see: Government's credit-rating concerns and the evaluation of public projects. Journal of Public Economics, 2014;115():117-130. Journal of Public Economics can be contacted at: Elsevier Science Sa, PO Box 564, 1001 Lausanne, Switzerland. (Elsevier -; Journal of Public Economics -

Our news correspondents report that additional information may be obtained by contacting N. Levy, Tel Aviv University, IL-69978 Tel Aviv, Israel.

Keywords for this news article include: Asia, Israel, Tel Aviv, Public Economics

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Source: Politics & Government Week

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