Front Matter

Author(s):
George Mackenzie, Philip Gerson, and David Orsmond
Published Date:
April 1997
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    The Composition of Fiscal Adjustment and Growth Lessons from Fiscal Reforms in Eight Economies

    G. A. Mackenzie, David W. H. Orsmond, and Philip R. Gerson

    INTERNATIONAL MONETARY FUND

    Washington, D.C.

    March 1997

    © 1997 International Monetary Fund

    Library of Congress Cataloging-in-Publication Data

    Mackenzie, G.A. (George A.), 1950-

    The composition of fiscal adjustment and growth: lessons from fiscal reforms in eight economies / G.A. Mackenzie, David W.H. Orsmond, and Philip R. Gerson.

    p. cm. — (Occasional paper, ISSN 0251-6365; 149)

    Includes bibliographic references.

    ISBN 1-55775-629-5

    1. Fiscal policy—Developing countries—Case studies. 2. Structural adjustment (Economic policy)—Developing countries—Case studies. 3. Economic stabilization—Developing countries—Case studies. I. Orsmond, David William Harold, 1963-. II. Gerson, Philip R. III. Title. IV. Series: Occasional paper (International Monetary Fund); no. 149.

    HJ1620.M33 1997 96-30022

    336.3′09172′4—dc21 CIP

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    Contents

    The following symbols have been used throughout this paper:

    • … to indicate that data are not available;

    • — to indicate that the figure is zero or less than half the final digit shown, or that the item does not exist;

    • – between years or months (e.g., 1994-95 or January-June) to indicate the years or months covered, including the beginning and ending years or months;

    • / between years (e.g., 1994/95) to indicate a crop or fiscal (financial) year.

    “Billion” means a thousand million.

    Minor discrepancies between constituent figures and totals are due to rounding.

    The term “country,” as used in this paper, does not in all cases refer to a territorial entity that 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.

    Preface

    It is generally accepted that a stable financial environment is a prerequisite for sustainable economic growth. To set the stage for sustained growth, countries suffering from high inflation and balance of payments difficulties must pursue what can be a wrenching fiscal adjustment in order to resolve their external and internal disequilibria. The goals of fiscal policy, however, should go beyond simply reducing the size of the fiscal imbalance. The way in which the reduction in the deficit is achieved, or the composition of fiscal adjustment, is as important as the quantity of the adjustment. It has a critical bearing on the likelihood that adjustment efforts will be sustained, and on the impact of the adjustment on a country’s long-run growth prospects. The importance of the “quality and composition of fiscal adjustment” was emphasized in the September 1996 “Declaration on Partnership for Sustainable Global Growth” of the Interim Committee (see IMF, 1996, page x).

    This study, a companion to Occasional Paper 139, Reinvigorating Growth in Developing Countries (Goldsbrough and others, 1996), examines the composition of fiscal adjustment—the tax and expenditure policies and administrative procedures, and some aspects of public enterprise reform—in a sample of eight countries during a period usually of 15 years and ending in 1993. Its principal aim is to determine whether and to what extent the composition of fiscal adjustment in these countries can be said to have changed in a way that fostered growth over the adjustment period. One of the criteria the study uses in this assessment is the degree to which countries protected social expenditure—and expenditure on primary education and public and primary health care in particular.

    The study is the product of a substantial collaborative effort by staff of the IMF’s Fiscal Affairs Department. We are indebted to numerous colleagues for their assistance with the country analysis, in particular Juan Amieva, Etienne de Callatay, Dale Chua, James Daniel, Xavier Maret, Janet Stotsky, and Helga Treichel. We are also indebted to colleagues from the Tax Administration and Public Expenditure Management Divisions for their contributions. The statistical work was largely the responsibility of Scott Anderson and Chris Wu, and administrative support was ably provided by Pearl Acquaah, Randa Sab, and Ahwerah Vichailak. The authors also want to acknowledge the guidance and general support offered by Vito Tanzi, Teresa Ter-Minassian, and Peter Heller. Jim McEuen of the External Relations Department edited the paper for publication and coordinated production. The opinions expressed in the paper are those of the authors and do not necessarily reflect the views of the IMF or of its Executive Directors.

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