2 Fiscal Policy, Expenditure Composition, and Growth in Low-Income Countries
Author:
Sanjeev Gupta
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Language:
English
Print Publication Date:
17 Sep 2004
Keywords:
BOOK; country; user payment; per capita income; francophone country; recipient country; exchange rate; hazard function; Health care spending; Africa; Western Hemisphere; Sub-Saharan Africa; Global; Asia and Pacific; growth rate; fiscal policy stance; model C. budget financing; fiscal policy-growth nexus; GDP increase; Total expenditures; Expenditure composition; Capital spending

Abstract

A large body of empirical research supports the notion that healthy budgetary balances are, over the long run, good for growth (Easterly, Rodriguez, and Schmidt-Hebbel, 1994). The effect of fiscal consolidation on growth in the short run, however, remains open to question as a number of studies—largely for industrial countries—have drawn the conclusion that under some circumstances fiscal contractions can stimulate growth.1 A central theme in these works is that the composition of fiscal adjustment plays a key role in determining whether fiscal contractions lead to higher growth and are also sustainable over time. These studies show that improving fiscal positions through the rationalization of the government wage bill and public transfers, rather than increasing revenues and cutting public investment, can foster higher growth even in the short run.

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Cover Helping Countries Develop
Helping Countries Develop
The Role of Fiscal Policy
ISBN:
9781589063181
Publication Date:
17 Sep 2004
Publisher:
International Monetary Fund
DOI:
https://doi.org/10.5089/9781589063181.071
Pages:
540
Front Matter
1 Fiscal Policy for Economic Development: An Overview
I Macroeconomic Policy in Developing Countries
II Public Spending and the Millennium Development Goals
III Revenues and Growth
IV. Fiscal Policy and Aid
V. Special Topics

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