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The determinants of IMF fiscal conditionality: Economics or politics?

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  • Bernardo Guimaraes
  • Carlos Eduardo Ladeira

Abstract

Conditionalities, measures that a borrowing country should adopt to obtain loans from the International Monetary Fund (IMF), are pervasive in IMF programs. Empirical work on the determinants of IMF conditionalities typically employs indicators based on the number of conditions as proxies for program austerity. This paper estimates the effects of political and economic factors on a different measure of stringency of conditionality: the fiscal balance requested in an agreement. The correlation between the number of conditions and the requested fiscal adjustment is close to zero in our sample. The requested adjustment is strongly linked to the country's fiscal deficit but is also affected by politics. For middle‐income and upper‐income countries, political alignment with the US has a significant negative effect on the fiscal effort required by the IMF. Déterminants des conditionnalités fiscales du FMI : facteurs économiques ou politiques? La « conditionnalité », c'est‐à‐dire l'ensemble des mesures qu'un pays emprunteur doit adopter pour obtenir des prêts du Fonds monétaire international, est un élément systématique des programmes du FMI. En règle générale, les travaux empiriques sur les déterminants des conditionnalités du FMI utilisent un certain nombre d'indicateurs basés sur le nombre de conditions à respecter, lesquelles servant de substituts aux programmes d'austérité. Dans cet article, nous évaluons l'effet des facteurs économiques et politiques sur une autre mesure de rigueur des conditionnalités, à savoir l'exigence d'équilibre fiscal. Dans notre échantillon, la corrélation entre le nombre de conditions et l'exigence d'ajustement fiscal est proche de zéro. L'ajustement exigé est fortement lié au déficit fiscal du pays, mais également à des facteurs politiques. Pour les pays à revenu intermédiaire, l'alignement politique avec les États‐Unis a un effet négatif important sur l'effort fiscal exigé par le FMI.

Suggested Citation

  • Bernardo Guimaraes & Carlos Eduardo Ladeira, 2021. "The determinants of IMF fiscal conditionality: Economics or politics?," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(3), pages 1361-1399, November.
    • Handle: RePEc:wly:canjec:v:54:y:2021:i:3:p:1361-1399
    DOI: 10.1111/caje.12524
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