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Making Fiscal Space Happen!

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  • Peter S. Heller
  • Menachem Katz
  • Xavier Debrun
  • Theo Thomas
  • Taline Koranchelian
  • Isabell Adenauer

Abstract

Debt relief and the scaling up of aid to low-income countries should allow for increased fiscal space for expenditure programs to spur long-term growth and reduce poverty. But as discussed in Peter Heller’s article “Pity the Finance Minister†(World Economics, Vol. 6, No. 4), designing a suitable medium-term fiscal framework that fosters a sustainable delivery of better public services and infrastructure while maintaining a credible commitment to fiscal prudence raises many challenges. This article first discusses what low-income countries can do to formulate fiscal policy frameworks that are ambitious in their goals for absorbing additional aid while maintaining longer-term sustainability of the expenditure programs and government finances. It then suggests the approaches required to manage the heightened fiscal policy risks associated with a scaled-up aid environment, including issues of coordination with monetary policy. And finally, the article discusses what institutional changes are needed if donors and countries are to facilitate the implementation of a higher level of aid-financed spending programs.

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Bibliographic Info

Article provided by World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE in its journal World Economics Journal.

Volume (Year): 7 (2006)
Issue (Month): 3 (July)
Pages: 89-132

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Handle: RePEc:wej:wldecn:250

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  1. Antonio Fatás & Ilian Mihov, 2013. "Policy Volatility, Institutions, and Economic Growth," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 362-376, May.
  2. Peter S. Heller, 2005. "Understanding Fiscal Space," IMF Policy Discussion Papers 05/4, International Monetary Fund.
  3. Ale Bulir & A. Javier Hamann, 2003. "Aid Volatility: An Empirical Assessment," IMF Staff Papers, Palgrave Macmillan, vol. 50(1), pages 4.
  4. Michael A. Clemens & Steven Radelet & Rikhil Bhavnani, 2004. "Counting chickens when they hatch: The short-term effect of aid on growth," International Finance 0407010, EconWPA.
  5. Oya Celasun & Xavier Debrun & Jonathan David Ostry, 2006. "Primary Surplus Behavior and Risks to Fiscal Sustainability in Emerging Market Countries," IMF Working Papers 06/67, International Monetary Fund.
  6. Oya Celasun & Xavier Debrun & Jonathan D. Ostry, 2006. "Primary Surplus Behavior and Risks to Fiscal Sustainability in Emerging Market Countries: A "Fan-Chart" Approach," IMF Staff Papers, Palgrave Macmillan, vol. 53(3), pages 3.
  7. LF Jameson Boex & Jorge Martinez-Vazquez & Robert McNab, 1998. "Multi-Year Budgeting: A Review of International Practices and Lessons for Developing and Transitional Economies," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper9804, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  8. Henning Bohn, 1998. "The Behavior Of U.S. Public Debt And Deficits," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 949-963, August.
  9. Eifert, Benn & Gelb, Alan, 2005. "Improving the dynamics of aid : towards more predictable budget support," Policy Research Working Paper Series 3732, The World Bank.
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Cited by:
  1. Jan Kees Martijn & Markus Berndt & Abu Shonchoy & Paolo Dudine, 2008. "The Spending and Absorption of Aid in PRGF Supported Programs," IMF Working Papers 08/237, International Monetary Fund.
  2. Gupta, Sanjeev, 2008. "Enhancing Effective Utilization of Aid in Fragile States," Working Paper Series RP2008/07, World Institute for Development Economic Research (UNU-WIDER).
  3. Devarajan, Shantayanan & Go, Delfin S. & Page, John & Robinson, Sherman & Thierfelder, Karen, 2008. "Aid, growth, and real exchange rate dynamics," Policy Research Working Paper Series 4480, The World Bank.
  4. World Bank, 2008. "Haiti : Public Expenditure Management and Financial Accountability Review," World Bank Publications, The World Bank, number 6469, February.

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