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Ideas for Developing Asia and the Pacific

Public–Private Partnerships in Georgia and Impact Assessment of Infrastructure

Publication | July 2020
Public–Private Partnerships in Georgia and Impact Assessment of Infrastructure

Infrastructure investments may boost public revenues.

We assess the impact of infrastructure based on the evaluation of infrastructure provision’s effect on public finance, presenting the case of Kutaisi International Airport in Georgia. We assess the impact of the airport on the public finances of the region in which is located and its spillover effects on the related regions. For the assessment, we obtained regional quarterly tax data for the years 2011–2017 from the Ministry of Finance of Georgia. We differentiated between three groups of taxes: total taxes, business taxes, and property taxes. We utilized the data to exploit the difference-in-difference approach, assessing the impact of the airport on tax revenues for the group of affected regions relative to a control group of unaffected regions. We further distinguished effects for the short term (2013), medium term (2014–2015), and long term (2016–2017). We found statistically significant increases in the growth rates of all three groups of tax revenues in at least one phase, with the magnitude of the increase being up to 29 percentage points relative to the group of control regions. The results of the empirical study suggest that the reconstruction of the airport had a positive impact on the tax revenues of the state. We further discuss the current state of infrastructure financing in Georgia and outline the importance of greater involvement of the private sector in infrastructure financing through public–private partnerships (PPPs). Consequently, we assess the recent developments in the PPP policy of Georgia and benchmark it against internationally recognized best practices. We define the challenges faced by PPPs and provide recommendations for further improvement of the PPP-friendly environment in the country. Finally, we discuss the development of the approach to enable the government to use the incremental tax revenues to fill the viability gap for infrastructure projects by increasing the rate of return for private investors.

WORKING PAPER NO: 1162