III Impact of the War on Budgetary Performance, Structural Weaknesses of the Budget, and Reform Measures
Author:
Mr. Jose Martelino
Search for other papers by Mr. Jose Martelino in
Current site
Google Scholar
PubMedClose
,
Mr. S. Nuri Erbas
Search for other papers by Mr. S. Nuri Erbas in
Current site
Google Scholar
PubMedClose
,
Mr. Adnan Mazarei
Search for other papers by Mr. Adnan Mazarei in
Current site
Google Scholar
PubMedClose
,
Ms. Sena Eken
Search for other papers by Ms. Sena Eken in
Current site
Google Scholar
PubMedClose
, and
Mr. Paul Cashin
Search for other papers by Mr. Paul Cashin in
Current site
Google Scholar
PubMedClose
Language:
English
Keywords:
OP; exchange rate; Lebanese pound; economy; exchange rate movement; currency substitution; net foreign currency position; US$ exchange rate series; Lebanese economy; Exchange rates; Monetary aggregates; Dollarization; Personal income; Middle East; South America; Africa; Europe; reform law; expenditure side; development expenditure; nontax revenue; valuation purpose; Consumption taxes; Income and capital gains taxes
Download PDF (1.8 MB)

Abstract

Prior to the civil war, the Lebanese Government played a relatively small role in overall economic activity and pursued conservative fiscal policies. For example, during 1974–75 the budget incurred surpluses, revenues made up 15–20 percent of GDP, and government expenditure amounted to less than 15 percent of GDP. The relative importance of tax and nontax revenue was about the same, with indirect taxes dominating tax revenue. While schedular income taxation had long been in use, indirect taxes (mainly customs duties) accounted for most tax revenue. On the expenditure side, the bulk of spending comprised wages and salaries paid to government employees.

Prior to the civil war, the Lebanese Government played a relatively small role in overall economic activity and pursued conservative fiscal policies. For example, during 1974–75 the budget incurred surpluses, revenues made up 15–20 percent of GDP, and government expenditure amounted to less than 15 percent of GDP. The relative importance of tax and nontax revenue was about the same, with indirect taxes dominating tax revenue. While schedular income taxation had long been in use, indirect taxes (mainly customs duties) accounted for most tax revenue. On the expenditure side, the bulk of spending comprised wages and salaries paid to government employees.

The outbreak of war resulted in a deterioration of Lebanon's revenue base and a simultaneous, relative rise in expenditures. The consequent deterioration in Lebanon's fiscal position was accommodated by financing from the Bank of Lebanon (BDL), which fueled inflation, exchange rate depreciations, and the dollarization of the economy. Furthermore, these developments dampened the relative contribution of the private sector, while increasing public expenditures widened the Government's role in the economy during and after the war.21 These issues are addressed in this and subsequent studies.

Since the ending of hostilities in 1990, Lebanon has achieved a significant level of fiscal adjustment. Although real postwar revenues have remained below the levels achieved in prewar years, they have recovered substantially relative to the war years. Real postwar expenditures have also remained at levels much higher than in prewar years but have been restrained relative to the war years. The end result was that the budget deficit declined steadily from 33 percent of GDP in 1990 to less than 9 percent in 1993.

In spite of this significant fiscal adjustment since the end of the war, Lebanon's budgetary structure continues to exhibit a number of important weaknesses. Structural weaknesses on the revenue side include a narrow revenue base, an overly complex revenue structure, limited direct taxation, a heavy reliance on nontax revenues, and a limited capacity for tax enforcement. This pattern is similar to that which prevailed before the war. On the expenditure side, the public sector's increased role in the reconstruction process also challenges the authorities to improve budgetary management to restrain the growth of expenditure.

Because of data limitations, a comprehensive evaluation of Lebanon's fiscal performance over a long period (in particular, during the war period) cannot be undertaken. Consequently, the analysis in this section is based on information available for selected years.

Overview of Fiscal Performance During and After the War

The advent of war caused a significant deterioration in Lebanon's overall budgetary performance, and, as a percentage of GDP, revenues declined while expenditures rose considerably (Chart 3). Although some relatively minor revenue measures were effected during the war, revenue yield was depressed, mainly as a result of the breakdown of government authority over revenue sources. Furthermore, revenue collection was adversely affected by inflation, which diminished real revenues from specific taxes, led people to delay tax payments, and induced a shift from taxed to nontaxed activities. As a result, revenues dropped substantially from 20 percent of GDP in 1974 to 5–6 percent of GDP in 1989–90 (Tables 4 and 5). In particular, customs duty receipts declined during 1988–90 owing to the loss of control over legal ports of entry and a consequent surge in illegal imports. However, toward the end of the war years, direct tax collections improved as economic activity began to recover, and the authorities instituted payment of the business profit tax on the basis of self-estimation. Nontax revenue also improved during 1989–90, as a result of the rise in real estate prices and the 6 percent ad valorem registration fee applied to real estate transactions. In addition, nontax revenue was boosted by the increase in profits of the BDL, reflecting increased treasury bill holdings by the BDL and profits from foreign exchange operations.

Table 4

Summary of Public Sector Operations

(In billions of Lebanese pounds)

article image
Sources: Lebanese authorities; and IMF staff estimates.

Includes foreign grants in some years and adjustments with respect to monetary accounts.

Includes advances and transfers and adjustments with respect to monetary accounts.

Commercial banks and Societe Financiere du Liban.

Discrepancy between deficit and financing.

Chart 3
Chart 3

GDP and Fiscal Performance

(In billions of Lebanese pounds)

Sources: Bank of Lebanon; and IMF staff estimates.

Revenue losses during the war years were not matched by a corresponding restraint in expenditure because of the Government's efforts to maintain a minimum level of public services and operations. Total expenditure rose from 15 percent of GDP in 1974 to 39 percent of GDP during 1989–90. In particular, domestic interest payments eventually absorbed a much greater share of total expenditure as the Government increasingly resorted to debt financing of budget deficits. In the event, total domestic debt increased from LL 31 billion in 1984 to LL 982 billion in 1989. Similarly, fuel subsidies rose to a peak of 19 percent of total expenditure in 1989.22 Although intermittent adjustments in wages and salaries were effected, the Government's wage bill declined from about 13 percent of GDP in 1976 to 7 percent of GDP in 1989. Nevertheless, reflecting the full-year effect of the sharp wage increase granted in the previous year, the public sector wage bill rose to 11 percent of GDP in 1990, and its share in total expenditure rose to 27 percent. Finally, budgetary capital expenditure declined from 6 percent of GDP in 1980 to 2 percent of GDP in 1990 and contributed to the deterioration in Lebanon's stock of public capita.

Table 5

Summary of Public Sector Operations

(In percent of GDP)

article image
Sources: Lebanese authorities; and IMF staff estimates.

At the end of the civil war, Lebanon's budget was characterized as follows: (1) low revenue yield, mainly owing to a lack of sufficient government control over revenue sources; (2) continued dependence on indirect taxes, as had been the case prior to the war; (3) increased importance of direct tax revenue relative to indirect taxes; (4) increased burden of domestic interest payments; and (5) a low level of capital expenditure. As a result of these developments, the budget surpluses incurred prior to the war were transformed into increasing deficits during the war and postwar years. The overall deficit rose from 12 percent of GDP (76 percent of total expenditure) in 1976 to 33 percent of GDP (84 percent of total expenditure) in 1990. Although the authorities increasingly resorted to domestic debt financing, they financed budget deficits largely through money creation, with some treasury bill issuance, and the share of foreign financing was insignificant. This process of money creation led to high inflation, and the government sector began to absorb an increasingly large share of domestic resources.

Significant fiscal adjustment began in 1991, when revenues increased fourfold to 13 percent of GDP as a result of the gradual reassertion of government authority over revenue sources. Widespread improvement in revenue collection occurred, particularly with respect to customs duties and nontax revenue. At the same time, restraint in current expenditure (including a hiring freeze) resulted in a significant decline in total expenditure to 29 percent of GDP, down from 39 percent in the previous year. Interest payments on domestic debt declined somewhat in real terms, owing to larger recourse to monetary financing. The fuel subsidy was limited to less than 1 percent of GDP, and other current expenditure declined by more than 3 percentage points to 10 percent of GDP. In contrast, capital expenditure increased fivefold to 4 percent of GDP, largely to restore basic public services and rehabilitate public infrastructure. These developments resulted in a substantial reduction in the overall deficit from 33 percent of GDP in 1990 to 16 percent of GDP in 1991 (56 percent of total expenditure).

Fiscal adjustment continued in 1992 as revenues doubled, mainly as a result of a substantial increase in both customs duty collections and nontax revenue. The share of tax revenue in total revenue increased to 48 percent and the share of indirect taxes rose to 44 percent, similar to the levels achieved in 1975. Although revenues declined somewhat to 11 percent of GDP, continued restraint in current expenditure caused total expenditure to decline to 23 percent of GDP. Consequently, the budget deficit was further lowered to 12 percent of GDP (52 percent of total expenditure) and was financed largely through debt issuance (Table 6). Increased recourse to treasury bill financing more than doubled domestic interest payments, whose share in total expenditure rose to 20 percent. In the event, the outstanding stock of treasury bills rose from LL 2,333 billion in 1991 to LL 4,754 billion in 1992. However, because of the rapid nominal growth in GDP (130 percent),23 the ratio of the nominal stock of treasury bills to GDP declined by 6 percentage points to 50 percent in 1992. While the shares of both wages and salaries and other expenditure remained at levels comparable to the previous year, the share of fuel subsidies in expenditure rose significantly, reflecting increased production and continued difficulties with tariff collection and illegal tapping. Development expenditure remained at low levels, declining relative to 1991.

Table 6

Summary of Public Sector Operations

(In percent of total)

article image
Sources: Lebanese authorities; and IMF staff estimates.

Includes discrepancy between net deficit and financing.

Revenues recovered further in 1993, increasing by 75 percent in absolute terms and by 3 percentage points, to 14 percent, in terms of GDP. As in 1991–92, this impressive recovery was mainly due to continued reassertion of civil authority and to improvements in tax enforcement and collection. Some significant revenue measures were also effected in 1993.

First, income taxes were revised in July 1993, to be effective as of 1994, with both the tax rates and the number of tax brackets lowered for personal and company income,24 The number of brackets for personal income tax purposes was lowered from 13 to 5, with marginal tax rates ranging from 2 percent to 10 percent, compared with 2 percent to 32 percent previously. Company income tax brackets were lowered from 12 to 4 with rates ranging from 3 percent to 10 percent (plus 5 percent on dividends if they are distributed), compared with 6 percent to 50 percent previously.

Second, a customs tariff reform law was drafted, reducing the number and the level of duty rates and imposing a minimum duty on all but a few imports. Under the new customs law, the number of rates is to be lowered from 30 to 8, and a minimum tariff of 2 percent is to be adopted for all imports, excluding gold, silver, and currency. Accordingly, the average effective rate is to be reduced by about one-half the previous rate, including surcharges.

Third, a shift to the market exchange rate for customs valuation purposes was envisaged but has not yet been implemented. However, the exchange rate used for customs duty purposes was raised in March 1992 from LL 200 to LL 800 per US$1. Upon implementation of the new law, the authorities will increase the exchange rate used for the valuation of imports for duty purposes from LL 800 per US$1 to the market level. As the market exchange rate is about equal to twice the official customs exchange rate, the new customs law is projected to be revenue-neutral. However, its impact on effective tariff rates may not be neutral.

Fourth, improvements were effected in the collection of property taxes and related fees, through updating of property value assessments and increases in such fees. Finally, tariffs on electricity, telephone, and water use were doubled.

As for expenditure, total expenditure in real terms in 1993 was maintained at about the same level as in 1992, equivalent to 23 percent of GDP. This favorable outcome was mainly the result of two factors. First, the 1993 budget was approved with a long delay and, until that time, expenditure in 1993 was implemented according to the 1992 budget appropriations, which were significantly lower than 1993 budget appropriations. As a result, significant expenditure savings were realized. Second, no wage and salary increases were granted in 1993, and the 1993 public wage bill declined further because of induced or voluntary resignations in connection with the civil service reform. While the fuel subsidy and other expenditures were maintained in real terms at about the same levels as in 1992, expenditure on domestic interest payments rose to 25 percent of total expenditure (6 percent of GDP), reflecting greater reliance on domestic financing through the issuance of government debt. However, capital expenditure remained at low levels, with no increase in real terms from 1992, because of delays in the implementation of the reconstruction program. The foregoing developments resulted in a further decline in the overall deficit to 8 percent of GDP (37 percent of total expenditure). The deficit was largely financed through domestic debt issuance, with foreign financing amounting to about 1 percent of GDP; in the event, the outstanding stock of treasury bills rose by 27 percent to LL 6,028 billion.

The increase in 1992–93 in the domestic debt stock to more than 45 percent of GDP has significant implications for the long-term sustainability of budget deficits at or beyond the level observed in 1993. Although the fiscal sustainability issue is outside the scope of the present study, it highlights the importance of addressing the structural weaknesses of the budget in order to ensure long-term fiscal stability and to maintain recourse to government borrowing at sustainable levels.

Structural Weaknesses of the Budget

The impressive improvement in Lebanon's fiscal stance through 1993 is attributable to the recovery of revenues and considerable expenditure restraint. Although total expenditure was effectively lowered in real terms as of the beginning of the postwar years, it remains significantly above the levels that prevailed prior to the war, resulting in a relatively higher overall deficit. Thus, the government sector has become larger than it had been before the war, absorbing a greater share of domestic resources.

The revenue composition that emerged at the end of 1993 is comparable to that of the prewar years, with indirect taxes and nontax revenue accounting for large shares of total revenue. However, total revenue mobilization in real terms still remains below the level that prevailed before the war. Although the improvement in revenue performance can be expected to continue in the coming years of reconstruction and recovery, a number of structural weaknesses remain to be addressed through substantial reform so as to improve domestic resource mobilization.

Table 7 shows the structure of Lebanon's government finances relative to those of selected Middle Eastern countries—Egypt, Iran, Jordan, Morocco, Syria, and Tunisia. Except for Jordan in 1991, Lebanon has the largest overall budget deficit but made great strides during 1991–93 in closing its fiscal deficit. Furthermore, Lebanon has the lowest total revenue-to-GDP ratio of the seven countries and, apart from Iran, the lowest total expenditure-to-GDP ratio. Despite the increase in the size of government during the war, the public sector still plays a relatively small role in the Lebanese economy.

Table 7

Fiscal Indicators for Selected Middle Eastern Countries

article image
Sources: International Monetary Fund, International Financial Statistics; and IMF staff estimates.

Excludes grants.

Includes central and local governments, food supply authority, and investment expenditure of public authorities.

Fiscal year July/June.

Estimates.

Preliminary actual.

On a commitment basis.

Excludes net lending and extrabudgetary expenditure.

Excludes military salaries and pensions.

Domestic debt servicing, including amortization.

As for the composition of revenues, Lebanon has the lowest contribution from direct taxes and (apart from Iran, an oil exporter) the highest contribution from nontax revenues, both of which point to an inelastic tax system. In addition, Lebanon, along with Jordan, has the lowest revenue from taxation of imports as a share of imports, although planned reforms to strengthen customs administration should increase such receipts. Of the seven countries, Lebanon's share of current expenditures is the highest, and its share of capital expenditures is the lowest in total spending. Such an outcome would not be expected for a country in the early stages of recovery from a civil war that destroyed a sizable part of its stock of capital. Finally, Lebanon (with Egypt) devotes a large and growing share of its expenditure to servicing its debt commitments, which reduces the authorities' flexibility to conduct fiscal policy and respond to unforeseen shocks to the economy.

These observations point to the following main structural weaknesses on the revenue side: (1) there is a heavy reliance on indirect taxes and relatively small income tax collections, while taxable income is not applied on global earnings;25 (2) although the bulk of indirect taxes consists of customs duties, the average effective taxation of imports remains low; (3) existing excise taxes are largely outmoded and very limited in scope and yield;26 there is no comprehensive tax on consumption, such as a general sales tax; (4) there is an overemphasis on nontax revenue, such as various fees, charges, fines, and miscellaneous property and enterprise income; and (5) the effectiveness of tax administration and collection is still limited.

As regards expenditures, the Government is expected in the coming years to continue with its large reconstruction program, resulting in a major increase in capital outlays. Additionally, the budgetary wage bill is anticipated to increase as a result of the recent adjustments in wages and salaries,27 which declined in real terms during the war. Calculations for 1981–93 indicate that the level of minimum wages declined in real terms by an estimated 80 percent, mainly because of the high inflation rates in the intervening years. Further, in order to contain inflationary pressures, the authorities intend to continue financing budget deficits through debt creation, which is anticipated to increase substantially the budgetary burden of domestic interest payments. Massive reconstruction projects, to be undertaken directly by the Government and other public entities (in particular, by the Council for Development and Reconstruction (CDR)), are slated to be financed largely from foreign concessional loans and official grants. The magnitude of the financing need is likely to increase sharply the level of foreign indebtedness and foreign debt service, which was relatively low until 1993.

Measures to Address the Structural Weaknesses

The authorities are committed to undertaking fiscal reform measures with a view to addressing the structural weaknesses of revenues and strengthening expenditure management and control. These measures are seen as necessary given that the Government is launching a large investment program to rebuild infrastructure and initiate economic recovery and will help ensure high sustainable levels of growth with financial stability. Toward these ends, the authorities are considering a number of fiscal measures and have sought technical assistance in this regard from the IMF and the World Bank. Expectedly, under the difficult postwar circumstances, the formulation and implementation of reform measures take time.

With regard to revenues, the authorities are initiating efforts to reform excise taxes and are considering adopting comprehensive consumption taxes with the following objectives: improve transparency, simplify tax administration, and strengthen revenues by improving their elasticity with respect to changes in income and price levels over time. They have also begun to improve tax administration by rehabilitating and computerizing tax records and assigning individual taxpayer identification numbers (TINs), as well as by establishing a tax unit to target taxpayers with large incomes. Furthermore, the authorities are considering measures to improve customs administration.28

On the expenditure side, the authorities are reforming the civil service in two phases. The first phase encompasses the immediate rehabilitation of the civil service, and the second phase aims at a medium- to longer-term restructuring of the system. The main objectives of the reform are to retrench superfluous employees, tighten and clarify hiring standards for government ministries, and improve the quality of the civil service over the medium term. Under the first phase, in December 1993, the public payroll was reduced by some 4,000 employees, comprising mainly “ghost” workers, early retirements, and induced resignations.

In the second phase, a number of reform measures have already been implemented: (1) a study of the personnel needs of government ministries and public utilities has been completed; (2) a series of decrees have been issued to cut down absenteeism and further eliminate ghost workers; (3) special legislation has been passed to reduce the number of government employees, targeting mainly corrupt and negligent workers; (4) some 3,500–5,000 badly placed noncadre (contractual) employees have been identified, with a view to retraining and redeploying them in areas of government service where they are needed (for example, municipal governments); and (5) a rule has been adopted to disallow the filling of government ministries' cadre allocations by the authority of each individual ministry alone, requiring a joint decision by the Cabinet to fill such vacancies; this rule is intended to minimize the scope for political appointments. Further, the authorities are creating an institutional development unit to establish guidelines and priorities for administrative reform over the medium to long term, and a technical cooperation unit to direct and implement technical assistance for administrative rehabilitation and capacity utilization.

In view of the need to contain the growth in current expenditure, the authorities acknowledge that public sector wage and employment policy requires close monitoring. Their goals are to reduce public sector employment and, in competition with the private sector, to improve the wages of qualified personnel in government service while containing the aggregate wage bill at affordable levels.

To reduce the share of domestic interest payments in total expenditure, the authorities have taken steps to lower domestic interest rates, including introducing longer-term debt instruments, increasing access to such instruments by the nonbank public, and developing secondary markets. In addition, they are trying to secure foreign financing on largely concessional terms or in the form of official grants for reconstruction outlays. To reduce the burden of the Electricité du Liban (EDL) fuel subsidy, the authorities are improving tariff collection, eliminating illegal tapping, and adjusting electricity tariffs in a timely manner. Furthermore, they are trying to attract private sector participation in public investment projects through privatization and build operate-transfer (BOT) schemes for projects currently planned by the CDR. Both measures should help slow the growth in public indebtedness associated with the reconstruction program.

The authorities are giving priority to improving budgeting procedures and expenditure control over the medium term. They have already drawn up a bill to separate budget preparation and execution from treasury operations and initiated computerized monitoring systems. Finally, the authorities are improving the fiscal data base with a view to monitoring more closely the evolution of expenditure and revenue, and enhancing the timeliness of policy decisions.29

21

GDP data for 1976–90 are estimates and in general understate the extent of economic activity because illegal activities, which increased significantly during the war years, were excluded.

22

Until 1988, all petroleum prices were controlled by the Government; in that year, the authorities eliminated the subsidy on gasoline by privatizing the importation of gasoline and limited fuel subsidies largely to electricity generation.

23

During 1992, the annual average rate of inflation was 120 percent.

24

Direct taxes include taxes on income, rental income tax, and the inheritance tax. Taxes on income comprise the personal income tax and the company income tax. The bulk of revenue from taxes on income consists of company income tax (estimated by the authorities to be about 90 percent of such revenue), and personal income taxes are collected largely from employees through payroll deductions.

25

For example, tax on income from rental property is subject to a different schedule.

26

Apart from a 10 percent levy imposed on water, electricity, and telecommunications, the main excisable items are petroleum products, cement, alcoholic beverages, and tobacco and cigarettes. Excises on these items are levied at specific as opposed to ad valorem rates; specific rates greatly limit the responsiveness of revenues to price increases and encumber tax administration.

27

Effective January 1, 1994, a 68.9 percent minimum wage increase was granted, which raised wages from about LL 118,000 a month (about $70) to LL 200,000 (about $120); higher wage levels were adjusted upward on the basis of a graduated scale.

28

Under the proposed World Bank schedule, customs administration reform will be implemented gradually over 1994–97.

29

Subsequent to IMF technical assistance on government finance statistics (GFS), the authorities are establishing a GFS data compilation system, to be accomplished in three phases. Under Phase I, a fiscal data base would be established that covers all central government operations that are included in the budget. Under Phase II, the operations of social security funds and the six extrabudgetary accounts, including the CDR, would be consolidated with those of the budgetary accounts to form consolidated central government. In Phase III, the operations of local government units (municipalities) would be consolidated with the rest of the government sector to form consolidated general government.

Cited By

Within Same Series

Other IMF Content

Other Publishers Content

  • Collapse
  • Expand
Cover Economic Dislocation and Recovery in Lebanon
Economic Dislocation and Recovery in Lebanon
Author:
Mr. Jose Martelino
,
Mr. S. Nuri Erbas
,
Mr. Adnan Mazarei
,
Ms. Sena Eken
, and
Mr. Paul Cashin
ISBN:
9781557754592
ISSN:
0251-6365
Publication Date:
01 Dec 1995
Publisher:
International Monetary Fund
DOI:
https://doi.org/10.5089/9781557754592.084
Pages:
71
  • <sup><xref ref-type="fig" rid="Rch03fig1">Chart 3</xref></sup>
    View in gallery
    Chart 3

    GDP and Fiscal Performance

    (In billions of Lebanese pounds)

Chart 3

GDP and Fiscal Performance

(In billions of Lebanese pounds)

  • Agénor, P. and M.S. Khan, “Foreign Currency Deposits and the Demand for Money in Developing Countries,” IMF Working Paper 92/1 (Washington: International Monetary Fund, January 1992).

    • Search Google Scholar
    • Export Citation

  • Arrau, P., and others, “The Demand for Money in Developing Countries: Assessing the Role of Financial Innovation,” IMF Working Paper 91/45 (Washington: International Monetary Fund, April 1991).

    • Search Google Scholar
    • Export Citation

  • Badrud-Din, A.-A., The Bank of Lebanon: Central Banking in a Financial Centre and Entrepot (London: Frances Pinter, 1984).

  • Banerjee, A., and Juan J. Dolado, “Exploring Equilibrium Relationships in Econometrics Through Static Models: Some Monte Carlo Experience,” Oxford Bulletin of Economics and Statistics, Vol. 48 (August 1986), pp. 253–77.

    • Search Google Scholar
    • Export Citation

  • Banerjee, A., and others, Co-Integration, Error-Correction, and the Econometric Analysis of Non-Stationary Data (New York: Oxford University Press, 1993).

    • Search Google Scholar
    • Export Citation

  • Barro, R.J., “Economic Growth in a Cross-Section of Countries,” Quarterly Journal of Economics, Vol. 106 (May 1991), pp. 407–43.

  • Barro, R.J., and X. Sala-i-Martin (1992a), “Convergence,” Journal of Political Economy, Vol. 100 (1992), pp. 223–51.

  • Barro, R.J., (1992b), “Regional Growth and Migration: A Japan-U.S. Comparison,” Journal of the Japanese and International Economies, Vol. 6 (December 1992), pp. 312–46.

    • Search Google Scholar
    • Export Citation

  • Barro, R.J., Economic Growth, (New York: McGraw-Hill, 1994).

  • Barro, R.J., N. Mankiw, and X. Sala-i-Martin, “Capital Mobility in Neoclassical Models of Growth,” Economic Growth Center Discussion Paper No. 655 (New Haven, Conn.: Yale University, March 1992).

    • Search Google Scholar
    • Export Citation

  • Bisat, A., and M. Hammour, “Economic Prospects for a Postwar Lebanon,” inThe Economics of Middle East Peace, ed. by S. Fischer, D. Rodrik, and E. Tuma (Cambridge, Massachusetts: MIT Press, 1993), pp. 155–79.

    • Search Google Scholar
    • Export Citation

  • Bordo, M., and L. Jonung, The Long-Run Behavior of the Velocity of Money: The International Evidence (Cambridge: Cambridge University Press, 1987).

    • Search Google Scholar
    • Export Citation

  • Bufman, G., and L. Leiderman, “Currency Substitution Under Nonexpected Utility: Some Empirical Evidence,” Journal of Money, Credit and Banking, Vol. 25 (August 1993, Part 1), pp. 320–35.

    • Search Google Scholar
    • Export Citation

  • Buiter, W., “A Guide to Public Sector Debt and Deficits,” Economic Policy: A European Forum, Vol. 1 (November 1985), pp. 13–79.

  • Calvo, G.A., and C. Vegh, “Currency Substitution in Developing Countries: An Introduction,” Revista de Analisis Economica, Vol. 7 (June 1992), pp. 3–27.

    • Search Google Scholar
    • Export Citation

  • Cashin, P.A., “Economic Growth and Convergence Across the Seven Colonies of Australasia, 1861–1991,” Economic Record (forthcoming, 1995).

    • Search Google Scholar
    • Export Citation

  • Chami, S.N., “Economic Performance in a War-Economy: The Case of Lebanon,” Canadian Journal of Development Studies, Vol. 13 (1992), pp. 325–36.

    • Search Google Scholar
    • Export Citation

  • Cohen, D., “Growth, Productivity and Access to the World Financial Markets,” Journal of the Japanese and International Economies, Vol. 6 (December 1992), pp. 365–82.

    • Search Google Scholar
    • Export Citation

  • Coulombe, S., and F. Lee, “Regional Economic Disparities in Canada” (unpublished; Ottawa: University of Ottawa, 1993).

  • Dickey, David A., and Wayne A. Fuller, “Distribution of the Estimators for Autoregressive Time Series with a Unit Root,” Journal of the American Statistical Association, Vol. 74 (June 1979), pp. 427–31.

    • Search Google Scholar
    • Export Citation

  • Dickey, David A., and Wayne A. Fuller, “Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root,” Econometrica, Vol. 49 (1981), pp. 1057–72.

    • Search Google Scholar
    • Export Citation

  • El-Erian, M., “Currency Substitution in Egypt and the Yemen Arab Republic: A Comparative Quantitative Analysis,” Staff Papers, International Monetary Fund, Vol. 35 (March 1988), pp. 85–103.

    • Search Google Scholar
    • Export Citation

  • Elkahif, M.A., and A.A. Kubursi, “Currency Substitution and Exchange Rate Instability: Which Comes First?,” QSEP Report No. 277 (Hamilton, Ontario: McMaster University, 1991).

    • Search Google Scholar
    • Export Citation

  • Engle, R.F., and C.W.J. Granger, “Cointegration and Error Correction: Representation, Estimation, and Testing,” Econometrica, Vol. 55 (March 1987), pp. 251–76.

    • Search Google Scholar
    • Export Citation

  • Erbas, S. N., “The Limits on Bond Financing of Government Deficits Under Optimal Fiscal Policy,” Journal of Macroeconomics, Vol. 11 (1989), pp. 589–98.

    • Search Google Scholar
    • Export Citation

  • Ericsson, N.R., “Cointegration, Exogeneity, and Policy Analysis: An Overview,” International Finance Discussion Paper No. 415 (Washington: Board of Governors of the Federal Reserve System, 1991).

    • Search Google Scholar
    • Export Citation

  • Fischer, S., “Seigniorage and the Case for a National Money,” Journal of Political Economy, Vol. 90 (April 1982), pp. 295–313.

  • Gaspard, Toufic, “The Gross Domestic Product of Lebanon in 1987,” Bulletin Trimestriel, Banque du Liban, No. 40-43 (1989), pp. 5–12.

    • Search Google Scholar
    • Export Citation

  • Girton, L., and D. Roper, “Theory and Implications of Currency Substitution,” Journal of Money, Credit and Banking, Vol. 13 (1981), pp. 12–30.

    • Search Google Scholar
    • Export Citation

  • Giovannini, A., and B. Turtelboom, “Currency Substitution,” NBER Working Paper No. 4232 (Cambridge, Massachusetts: National Bureau of Economic Research, 1992).

    • Search Google Scholar
    • Export Citation

  • Giuidotti, P.E., and C.A. Rodriguez, “Dollarization in Latin America: Gresham's Law in Reverse?,” Staff Papers, International Monetary Fund, Vol. 39 (September 1992), pp. 518–44.

    • Search Google Scholar
    • Export Citation

  • Granger, C.W.J., “Developments in the Study of Cointegrated Economic Variables,” Oxford Bulletin of Economics and Statistics, Vol. 48 (August 1986), pp. 213–28.

    • Search Google Scholar
    • Export Citation

  • Hoffman, D.L., and C. Tahiri, “Money Demand in Morocco: Estimating Long-Run Elasticities for a Developing Country,” Oxford Bulletin of Economics and Statistics, Vol. 56 (August 1994), pp. 305–24.

    • Search Google Scholar
    • Export Citation

  • Home, J., “Indicators of Fiscal Sustainability,” IMF Working Paper 91/5 (Washington: International Monetary Fund, January 1991).

  • International Monetary Fund, International Financial Statistics (Washington: International Monetary Fund, various issues).

  • International Monetary Fund, Direction of Trade Statistics (Washington: International Monetary Fund, various issues).

  • Johansen, S., “Statistical Analysis of Cointegrating Vectors,” Journal of Economic Dynamics and Control, Vol. 12 (1988), pp. 231–54.

    • Search Google Scholar
    • Export Citation

  • Johansen, S., and K. Juselius, “Maximum Likelihood Estimation and Inference on Cointegration, with Applications to the Demand for Money,” Oxford Bulletin of Economics and Statistics, Vol. 52 (1990), pp. 169–210.

    • Search Google Scholar
    • Export Citation

  • Khan, M., and C.L. Ramirez-Rojas, “Currency Substitution and Government Revenue from Inflation,” Revista de Analisis Economico, Vol. 1 (1986), pp. 79–88.

    • Search Google Scholar
    • Export Citation

  • Lipschitz, L., and D. McDonald, “Real Exchange Rates and Competitiveness: A Clarification of Concepts, and Some Measurements for Europe,” IMF Working Paper 91/25 (Washington: International Monetary Fund, March 1991).

    • Search Google Scholar
    • Export Citation

  • Lucas, R.E., “On the Mechanics of Economic Development,” Journal of Monetary Economics, Vol. 22 (July 1988), pp. 3–42.

  • Makdisi, S., “Political Conflict and Economic Performance in Lebanon, 1975–1987,” Bulletin Trimestriet, Banque du Liban, No. 33-34 (1987), pp. 4–12.

    • Search Google Scholar
    • Export Citation

  • Marsh, I.W., and S.P. Tokarick, “Competitiveness Indictors: A Theoretical and Empirical Assessment,” IMF Working Paper 94/29 (Washington: International Monetary Fund, March 1994).

    • Search Google Scholar
    • Export Citation

  • McDermott, C.J., “Cointegration: Origins and Significance for Economists,” New Zealand Economic Papers, Vol. 24 (1990), pp. 1–23.

  • McDermott, C.J., and A. Y-T. Wong, “Exogeneity in the New Zealand Money-Income Relationship,” New Zealand Economic Papers, Vol. 24 (1990), pp. 24–41.

    • Search Google Scholar
    • Export Citation

  • Melvin, Michael, “The Dollarization of Latin America as a Market-Enforced Monetary Reform: Evidence and Implications,” Economic Development and Cultural Change, Vol. 36 (April 1988), pp. 543–58.

    • Search Google Scholar
    • Export Citation

  • Melvin, Michael, and G. A. de la Parra, “Dollar Currency in Latin America: A Bolivian Application,” Economics Letters, Vol. 31 (December 1989), pp. 393–97.

    • Search Google Scholar
    • Export Citation

  • Mulligan, C.B., and X. Sala-i-Martin, “Transitional Dynamics in Two-Sector Models of Endogenous Growth,” Quarterly Journal of Economics, Vol. 108 (August 1993), pp. 739–73.

    • Search Google Scholar
    • Export Citation

  • Muscatelli, V.A., and L. Papi “Cointegration, Financial Innovation and Modelling the Demand for Money in Italy,” Manchester School of Economic and Social Studies, Vol. 58 (September 1990), pp. 242–59.

    • Search Google Scholar
    • Export Citation

  • Orden, D., and L.A. Fisher, “Financial Deregulation and the Dynamics of Money, Prices, and Output: Evidence from Australia and New Zealand,” Discussion Paper No, 90/9 (Sydney, Australia: University of New South Wales, December 1990).

    • Search Google Scholar
    • Export Citation

  • Osseiran, Fadi, “Currency Substitution in Lebanon, 1977–1986,” Bulletin Trimestriel, Banque du Liban, No. 35 (1987), pp. 4–12.

  • Phillips, P.C.B., and S. Ouliaris, “Asymptotic Properties of Residual Based Tests for Cointegration,” Econometrica, Vol. 58 (January 1990), pp. 165–93.

    • Search Google Scholar
    • Export Citation

  • Phillips, P.C.B., and P. Perron, “Testing for a Unit Root in Time Series Regression,” Biometrika, Vol. 75 (1988), pp. 335–46.

  • Saïdi, Nasser, “Flexible Exchange Rates and Competitive Banking: An Interpretation of Lebanon's Monetary Experience, 1950–1977,” Bulletin Trimestriel, Banque du Liban, No. 9 (June 1981), pp. 28–40.

    • Search Google Scholar
    • Export Citation

  • Saïdi, Nasser, (1984a), “The Effects of the War on Economic Activity in Lebanon: Quantitative Estimates,” Bulletin Trimestriel, Banque du Liban, No. 20 (1984), pp. 5–13.

    • Search Google Scholar
    • Export Citation

  • Saïdi, Nasser, (1984b), “Explaining Inflation and the Depreciation of the Lebanese Pound: 1964–1982,” Bulletin Trimestriel, Banque du Liban, No. 21-22 (1984).

    • Search Google Scholar
    • Export Citation

  • Saïdi, Nasser, “Economic Consequences of the War in Lebanon,” Bulletin Trimestriel, Banque du Liban, No. 28-30 (1986).

  • Sala-i-Martin, X., “The Wealth of Regions: Evidence and Theories of Regional Growth and Convergence” (unpublished; New Haven, Conn.: Yale University, 1994).

    • Search Google Scholar
    • Export Citation

  • Shioji, E., “Regional Growth in Japan,” (unpublished; New Haven, Conn.: Yale University, 1992).

  • Short, B., “Preliminary Estimates of the Import Demand and Money Demand Functions,” Bulletin Trimestriel, Banque du Liban, No. 10 (October 1981), pp. 24–26.

    • Search Google Scholar
    • Export Citation

  • Solow, R.M., “A Contribution to the Theory of Economic Growth,” Quarterly Journal of Economics, Vol. 70 (February 1956), pp. 65–94.

    • Search Google Scholar
    • Export Citation

  • Spitäller, Erich, “A Monetary Model of the Lebanese Pound/US Dollar Exchange Rate, 1952–1978,” Bulletin Trimestriel, Banque du Liban, No. 6 (September 1980), pp. 42–47.

    • Search Google Scholar
    • Export Citation

  • Stock, J.H., “Asymptotic Properties of Least Squares Estimators of Cointegrating Vectors,” Econometrica, Vol. 55 (September 1987), pp. 1035–56.

    • Search Google Scholar
    • Export Citation

  • Swan, T. W., “Economic Growth and Capital Accumulation,” Economic Record, Vol. 32 (1956), pp. 334–61.

  • Toda, H. Y., and P.C.B. Phillips, “Vector Autoregressions and Causality,” Econometrica, Vol. 61 (November 1993), pp. 1367–93,

  • Towe, C.M., “Exchange Rate 'Fundamentals' Versus Speculation in a Developing Economy: An Illustrative Example Using Lebanese Data,” Staff Papers, International Monetary Fund, Vol. 36 (September 1989), pp. 678–707.

    • Search Google Scholar
    • Export Citation

  • United Nations, Special Economic and Disaster Relief Assistance: Special Programmes of Economic Assistance, Assistance for the Reconstruction and Development of Lebanon, A/46/557/Add.2 (New York: United Nations, 1991).

    • Search Google Scholar
    • Export Citation

  • Uzawa, Hirofumi, “Optimum Technical Change in an Aggregative Model of Economic Growth” International Economic Review, Vol. 6 (January 1965), pp. 18–31.

    • Search Google Scholar
    • Export Citation

  • Vegh, C.A., “Currency Substitution and the Optimal Inflation Tax Under Labor Income Taxation” (unpublished; Washington: International Monetary Fund, 1989).

    • Search Google Scholar
    • Export Citation

  • Wilson, John F., “Physical Currency Movements and Capital Flows,” in Report on the Measurement of International Capital Flows: Background Papers (Washington: International Monetary Fund, 1992), pp. 91–97.

    • Search Google Scholar
    • Export Citation

  • Woodford, M., “Does Competition Between Currencies Lead to Price Level and Exchange Rate Stability?” NBER Working Paper No. 3441 (Cambridge, Massachusetts: National Bureau of Economic Research, 1990).

    • Search Google Scholar
    • Export Citation

  • World Bank, Lebanon: Stabilization and Reconstruction, vols. 1 and 2 (Washington, 1993).