Front Matter

Front Matter

Editor(s):
Mario Bléjer, and Ke-young Chu
Published Date:
June 1989
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    FISCAL POLICY, STABILIZATION, AND GROWTH IN DEVELOPING COUNTRIES

    Edited by Mario I. Blejer and Ke-young Chu

    International Monetary Fund

    September 1989

    © 1989 International Monetary Fund

    Library of Congress Cataloging-in-Publication Data

    Fiscal policy, stabilization, and growth in developing countries / edited by Mario I. Blejer and Ke-young Chu.

      • p. cm.

    • Includes bibliographic references.

    • ISBN 1-55775-034-3

    • 1. Fiscal policy—Developing countries. 2. Economic stabilization—Developing countries. I. Blejer, Mario I. II. Chu, Ke-young, 1941–

    HJ1620.F57 1989

    339.5’09172’4—dc20

    89-15237

    CIP

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    The term “country,” as used in this book, does not in all cases refer to a territorial entity which is a state as understood by international law and practice; the term also covers some territorial entities that are not states but for which statistical data are maintained and provided internationally on a separate and independent basis.

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    Contents

    Foreword

    Over the past two decades, the traditional concept and practice of fiscal policy have undergone fundamental changes. Some of these changes have accompanied the reassessment of Keynesian economics. Others have originated in the growing interdependence of the world’s economies. Greater capital mobility and availability of information, as well as the growing share of imports and exports in the national incomes of many countries, have ensured that the effects of fiscal policy changes on a country’s economic activity will be reduced, the more open its economy is. Some of the changes have followed the recognition that, in addition to the linkages across countries, there are also linkages through time. This year’s fiscal actions do not affect economic variables (output, prices, employment) just this year but also in future years. This is especially true when fiscal actions result in the accumulation of public debt, in capital flight, or in distortions in the economy.

    Some of the changes in attitude toward fiscal policy have come from a realization that institutions in developing countries are often different from those in industrialized countries. The institutional environment of the developing countries implies that there are stronger linkages between, say, fiscal developments in the central governments, on the one hand, and in the rest of the public sector (central bank, local governments, public enterprises, social security institutions, and so forth), on the other. There has also been growing attention paid to the micro, or structural, aspects of fiscal policy. While in traditional Keynesian economics, fiscal policy actions could be assumed to be summarized in a few numbers (the amounts of aggregate expenditure, taxes, and the fiscal deficit), in the developing countries this assumption is much less justified because of the impact of fiscal measures on the efficiency of the economy. Furthermore, it may be more difficult to come up with a generally satisfactory measure of the fiscal deficit in these countries.

    The present book reflects some of these developments. It emphasizes linkages across space, through time, and among components of public sector, as well as between macro and micro aspects of fiscal policy. It brings together the work of economists who have been, so to speak, at the front lines of policy action—individuals who, with only one exception, have worked in the Fiscal Affairs Department of the International Monetary Fund and, as a consequence, have been intimately involved in the fiscal reforms and the fiscal policies of many developing countries. These authors have not been mere spectators, but rather practitioners who have learned from direct experience and have tried, in their papers, to sort out some of the general lessons they learned.

    Economists who have not been intimately involved with issues of fiscal policy in developing countries will undoubtedly find many aspects of this book worthy of additional research. I hope that other economists will analyze and research some of the ideas discussed in these articles in a more relaxed way than those who wrote them could. Do more efficient fiscal measures reduce or increase the short-run need for deficit reduction in adjustment programs? Is there a role for fiscal policy in the mobilization of savings for growth? Is there a relationship among fiscal policy, public debt, and capital flight? What is the role of fiscal policy in so-called heterodox stabilization programs? What are the impacts of exogenous shocks on the fiscal accounts and on the fiscal policies of developing countries? What should be the fiscal policy reactions of those countries to these shocks? Is there a link between the fiscal policy actions of industrial countries and the performance of developing countries’ economies? What is the link between the fiscal deficit and the balance of payments of developing countries? These are some, but not all, of the questions raised in this book. It is my hope that the book will convey to the reader the richness and the variety of fiscal experiences in developing countries and will stimulate other economists to do more work in these important areas. Given the seriousness of the debt crisis and the connection between that crisis and fiscal policy, such research would certainly be desirable. It is also my hope that these papers will continue helping policymakers to improve the quality of policymaking in their respective countries.

    Vito Tanzi

    Director

    Fiscal Affairs Department

    Acknowledgments

    The editors wish to thank the contributing authors for consenting to release their papers for inclusion in this volume, as well as for cooperating actively in preparing the papers in the required format. Seven of the 13 papers included have been published previously and appear here with the kind permission of their respective publishers. The views expressed in all of the papers are those of their respective authors and should not be interpreted as those of the Fund.

    The editors also wish to thank Paul Gleason and Sara Kane for providing valuable editorial help, and Professors Arnold Harberger and John Whalley for commenting on the manuscripts in the initial stage of their preparation for publication. Their suggestions led to a significant improvement in the organization and presentation of the papers in the volume.

    Preparing a volume like this one for publication is a demanding and time-consuming task, sometimes requiring efforts going above and beyond the call of duty. The editors are particularly indebted to M. Regina Liana, who, together with Leda Montero, provided indispensable editorial and secretarial assistance.

    Last, but not least, the editors wish to express their gratitude to the many staff members of the Fund’s Fiscal Affairs Department who provided guidance, encouragement, and support for this project.

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