The taxpayer-shareholder fallacy and private finance initiatives

There is a growing support for the view that the private sector is at least as efficient as the public sector in managing investment risks of large projects. Governments forget that it is the taxpayer who bears all the risks in a public finance scenario of investments. So, it seems unfounded that governments should neglect the cost of investment risk in obtaining finance as the taxpayer might be seen as a shareholder in (public) investments, which by definition are risky. It is this taxpayer-is-shareholder perspective that will be criticized in this paper. This taxpayer approach neglects the variety of funding and financing positions that might be taken by the various actors in investment projects. The paper concludes that some prudence is recommended in supporting private finance initiatives.