Front Matter

Front Matter

International Monetary Fund
Published Date:
March 1986
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    This book examines the fiscal policy pursued by thirteen of the smaller industrial countries over the period 1972–82. This period was a particularly turbulent one for the world economy, and especially for the countries considered here, whose small, open economies made them highly vulnerable to external economic shocks. All these countries relied heavily on fiscal measures to cushion the adverse impact of these externally induced shocks on living standards, while attempting, at the same time, to counter growing imbalances in the domestic economy. The fiscal policies they pursued had important implications for overall economic performance.

    Following a broad comparative analysis of fiscal developments and responses in these thirteen countries, this study examines in detail the fiscal performance of each economy during the years 1972-82. Despite the similarities shared by these countries, their individual fiscal performance during this testing period for fiscal policy differed widely. This volume seeks to account for these differences through an examination of the institutional arrangements, fiscal practices, and influential socio-political attitudes that determined the fiscal response to an economically challenging decade.

    Gísli Blöndal holds a Ph.D. in economics from the London School of Economics. Following a brief career in the Central Bank of Iceland, he joined the Ministry of Finance of Iceland as Budget Director. In 1978 he came to the International Monetary Fund as Alternate Executive Director representing the Nordic countries. He is currently an Advisor in the Fiscal Affairs Department at the IMF.

    ISBN 0-939934-36-1 (cloth)

    ISBN 9780939934539 (paper)

    © 1986 by the International Monetary Fund



    This study was undertaken to provide information and analyses of developments in the public finances of the smaller industrial countries over the decade 1972–82. It also reflects an evolving pattern in the Fiscal Affairs Department of the International Monetary Fund of following fiscal developments in groups of member countries. At the same time, the study is intended to partially meet recent requests of the Executive Board for international comparison and analysis of various aspects of fiscal developments and policies. The choice of countries was made on the basis of two criteria: first, the availability of statistical and other sources suitable for comparative purposes; and second, the considerable gap in the literature on comparative fiscal policies in these countries, much more so than in the major industrial countries—the only other homogeneous group of member countries that meets the first criterion.

    Owing to lack of comparable statistical data, the study does not go beyond 1982, and in one instance, not beyond 1981—the last years for which such data were available when the study was completed. Although inclusion of a more recent period would have been desirable, its omission has little effect on this study, as it focuses on institutional arrangements and fiscal developments over a longer period of time for the purpose of revealing features that might enhance knowledge and understanding of various aspects of public finances and fiscal policy. Moreover, the study covers the most turbulent years of the postwar period for the world economy: a period that posed an exceptionally strong challenge to fiscal policy. In considering the likely path of fiscal policy in the future, limited account is taken of the events that occurred in 1983 and 1984. It is clear, however, that in this period the orientation of fiscal policy underwent changes in some of these countries. Therefore, to avoid giving an inaccurate impression of the current situation, footnotes at the end of the relevant country sections briefly indicate the general direction of such changes.

    Various Fund documents and Organization for Economic Cooperation and Development (OECD) country surveys are the basic sources used in the analysis. Other sources are quoted separately as appropriate. Statistical data on consolidated central government finances are derived from the 1983 and 1984 Government Finance Statistics (GFS) Yearbooks, which provide statistics that are consistent over time and comparable across countries. GFS data may differ from those conventionally used by national authorities, owing to different conceptual interpretation. According to the GFS definition, consolidated central government includes social security funds and may cover other entities that in some countries are not usually attributed to central government. Also, net lending is grouped with expenditure in GFS. Ratios of revenue and expenditure to gross domestic product (GDP), for example, may for these reasons tend to be larger than those derived from national sources, and measurements of fiscal balances may also differ. The source for GDP statistics is the 1984 International Financial Statistics (IFS) Yearbook and subsequent updates. For countries whose fiscal years do not coincide with calendar years, the GDP data have been adjusted to fiscal years. Data on selected economic indicators presented at the end of each country section are taken from OECD Economic Outlook, December 1984, and national sources as indicated.

    The study is divided into two parts. Part I is a comparative analysis, and Part II deals with institutional arrangements and fiscal developments in individual countries. Part I is organized as follows. Chapter 1 sets forth some major economic characteristics of this group of countries, their implications for the pursuit of fiscal policy, and the role played in that respect by the central government. The chapter concludes by reviewing the main aims of fiscal policy over the period. Chapter 2 accounts for the growth of expenditure and revenue and the implications for the fiscal balance and debt accumulation. Chapter 3 provides a broad account of fiscal policies pursued by these countries over the period and examines how changes in economic circumstances, like the impact of the two oil crises, affected the policy stance. Chapter 4 considers major obstacles encountered by most countries in the group in their endeavors to bring about targeted fiscal adjustments; and Chapter 5 goes on to analyze implications of past fiscal developments and policies for overall economic performance. Chapter 6 summarizes the main findings and draws some conclusions. The structure of the study of developments in individual countries is accounted for in the introduction to Part II.

    For assistance in writing this book, the author is indebted to many colleagues at the International Monetary Fund. Particular thanks are due to Vito Tanzi, Director of the IMF Fiscal Affairs Department, for constructive comments and encouragement throughout; to Klaus-Walter Riechel for helpful comments on the comparative part of the book; and to his colleagues in the IMF’s European Department who commented in detail on individual country sections. Ms. Ziba Farhadian provided valuable research assistance. Mrs. Juanita Roushdy edited the first draft, and Ms. Sara Kane edited the final draft of the book and saw it through the various stages of publication. Miss Mary Riegel typed most of the first draft, and Mrs. Sonia A. Piccinini typed the final draft and prepared it for printing. Mr. Hördur Karlsson of the Graphics Section of the IMF designed the cover, and Mr. Alva Madairy and his associates provided the book design and composition.

    The views expressed here are those of the author and should not be ascribed to the International Monetary Fund.

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