Evaluating fiscal supports on the public–private partnerships: a hidden risk for contract survival

Abstract While public–private partnerships (PPPs) have the potential of bridging infrastructure gaps in developing countries, frequent contract renegotiations and terminations pose significant fiscal challenges. This article investigates whether government fiscal risk-taking—through guarantees or subsidies—along with the strength of underlying fiscal institutions can explain the high incidence of contract distress. Employing matching and a control function method, the analysis reveals that the contract hazard ratio increases by a factor of 3 when government guarantees are issued for PPPs. Furthermore, using a causal survival forest model, it assesses treatment effect heterogeneity of the fiscal supports. The results show that the risk of contract disputes is most pronounced in developing countries at the bottom quintile of public investment management capacity. These findings underscore the critical role of robust infrastructure governance as a prerequisite for effectively leveraging the benefits of PPPs.