Assessment of Two Modes of Financing Land Transport Investment in the Philippines

Abstract

This paper introduces a system-wide spatial impact analysis of two modes of financing of land transport infrastructure in the Philippines with opposite reallocative effects — (1) foreign transfers as in official development assistance funds and (2) value-added tax on transport services. These two financing modes are alternatively used to finance an equal amount of land transport infrastructure improvement across five different Philippine regions. The effect of each financing scheme will be analyzed per regional transport mode, per regional production sector; and per regional household income group. A spatial computable general equilibrium model is used to estimate the values of production and welfare after an exogenous financing shock is introduced. Results show that value-added tax has slightly greater impact on regional output and regional welfare than foreign transfers.