How Effective Are Second-Generation Road Funds? A Preliminary Appraisal

Underfunded, inefficient road maintenance is a perennial problem in many developing economies. To address it, some countries have created "second-generation" road funds that are financed by fuel levies and managed by boards representing the interests of road users. Macroeconomists often oppose such funds, arguing that this earmarking of revenue reduces fiscal flexibility. Some argue that such road funds should be seen as an interim step toward fully commercialized road maintenance or good public sector governance--and hence subject to sunset provisions. Decisions on whether to retain (or create) such funds should then be based on their effects on resource allocation, operational efficiency, and rent seeking. Using evidence on new road funds in Africa, this article finds that they have not undermined fiscal flexibility. Moreover, they have improved the administration of road funding (in terms of execution capability) and its outputs (in terms of road conditions). So, although criteria for assessing road funds remain relevant, the funds should not automatically be considered temporary mechanisms. But when establishing new funds, government's continued role in approving spending on road maintenance should be explicitly recognized. Copyright 2003, Oxford University Press.