Why is it so Hard to Finance Budget Deficits? Problems of a Developing Country
AbstractThis paper examines possible ways for a developing country to finance budget deficits from domestic resources. It does so by analyzing Pakistan''s National Savings Scheme (NSS). The NSS has a number of unusual attributes, and its impact upon the economy of Pakistan is not clear, but given Pakistan''s chronic fiscal difficulties, the NSS is of great importance in financing the public sector deficit. We use an econometric model to analyze the relationship between the demands for NSS deposits and various other financial instruments, in particular, bank deposits, and foreign-currency deposits. We conclude that NSS and bank deposits are net substitutes, as are NSS and foreign-currency deposits. Bank deposits and foreign-currency deposits, however, seem to be neither substitutes nor complements. Also, the estimated income elasticity of the demand for bank deposits is negative, while that of foreign-currency deposits is positive, and that of NSS is not significantly different from zero. Finally, there is evidence that foreign-currency deposits are a net substitute for NSS deposits. Thus, there is some empirical evidence that foreign currency deposits have absorbed part of the demand for NSS deposits. Accordingly, the availability of foreign-currency deposits may have reduced the ability of the government to finance itself.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 02/95.
Date of creation: 01 May 2002
Date of revision:
Contact details of provider:
Postal: International Monetary Fund, Washington, DC USA
Phone: (202) 623-7000
Fax: (202) 623-4661
Web page: http://www.imf.org/external/pubind.htm
More information through EDIRC
Other versions of this item:
- Feltenstein, Andrew & Iwata, Shigeru, 2002. "Why is it so hard to finance budget deficits? Problems of a developing country," Journal of Asian Economics, Elsevier, Elsevier, vol. 13(4), pages 531-544.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- William C. Brainard & James Tobin, 1968. "Pitfalls in Financial Model-Building," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 244, Cowles Foundation for Research in Economics, Yale University.
- Hess, Alan C, 1991. "The Effects of Transaction Costs on Households' Financial Asset Demands," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 23(3), pages 383-409, August.
- Nadiri, M Ishaq & Mamuneas, Theofanis P, 1994.
"The Effects of Public Infrastructure and R&D Capital on the Cost Structure and Performance of U.S. Manufacturing Industries,"
The Review of Economics and Statistics,
MIT Press, vol. 76(1), pages 22-37, February.
- M. Ishaq Nadiri & Theofanis P. Mamuneas, 1991. "The Effects of Public Infrastructure and R&D Capital on the Cost Structure and Performance of U.S. Manufacturing Industries," NBER Working Papers 3887, National Bureau of Economic Research, Inc.
- Nadiri, M. Ishaq & Mamuneas, Theofanis P., 1991. "The Effects of Public Infrastructure and R&D Capital on the Cost Structure and Performance of U.S. Manufacturing Industries," Working Papers, C.V. Starr Center for Applied Economics, New York University 91-57, C.V. Starr Center for Applied Economics, New York University.
- Taylor, John C. & Clements, Kenneth W., 1983. "A simple portfolio allocation model of financial wealth," European Economic Review, Elsevier, Elsevier, vol. 23(2), pages 241-251.
- Govinda Bahadur Thapa Ph. D., 2005. "Deficit Financing: Implications and Management," NRB Economic Review, Nepal Rastra Bank, Research Department, Nepal Rastra Bank, Research Department, vol. 17, pages 16-26, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jim Beardow) or (Hassan Zaidi).
If references are entirely missing, you can add them using this form.