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Growth, Governance, and Fiscal Policy Transmission Channels in Low-Income Countries
Author:
Naoko C. Kojo null

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Mr. Arye L. Hillman null

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Mr. Emanuele Baldacci
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Series:
IMF Working Papers
Volume/Issue:
Volume 2003: Issue 237
Language:
English
Publication Date:
01 Dec 2003
DOI:
https://doi.org/10.5089/9781451875737.001
ISBN:
9781451875737
ISSN:
1018-5941
Pages:
39
Keywords:
WP; deficit; exchange rate; low-deficit dummy
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Private investment is the principal transmission channel through which fiscal policy affects growth in high-income countries. In low-income countries, governance and also other considerations suggest that the primary channel is factor productivity. Empirical results reported in this paper confirm this expectation: in low-income countries, factor productivity is some four times more effective than investment as a channel for increasing growth through fiscal policy. Although the private investment response to fiscal contraction may be minor, high-deficit, low-income countries can nonetheless benefit from a reduction in unsustainable fiscal deficits because of governance-related factor productivity responses that increase growth.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund