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Growth, Governance, and Fiscal Policy Transmission Channels in Low-Income Countries

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Author Info

  • Naoko C. Kojo
  • Arye L. Hillman
  • Emanuele Baldacci

Abstract

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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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/237.

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Length: 39
Date of creation: 01 Dec 2003
Date of revision:
Handle: RePEc:imf:imfwpa:03/237

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Keywords: Governance; Economic growth; fiscal policy; public spending; fiscal deficit; fiscal contractions; expansionary fiscal; expenditure; expansionary fiscal contractions; composition of public spending; fiscal deficits; public expenditure; government spending; budget deficits; tax revenue; fiscal balance; government expenditure; capital expenditure; public debt; fiscal consolidations; fiscal adjustments; fiscal contraction; fiscal policies; fiscal sustainability; expansionary fiscal contraction; expenditure composition; taxation; fiscal stability; expenditures; composition of government spending; fiscal deficit variable; government budget deficits; government revenue; tax revenues; government budget; fiscal adjustment; health expenditure; fiscal expansions; fiscal policy variables; capital expenditures; total expenditure; fiscal affairs department; fiscal affairs; budget deficit; budget support; foreign capital; budget composition; fiscal expansion; fiscal vulnerabilities; size of government spending; taxes on labor; tax increases; public deficits; fiscal accounts; public finance; composition of government expenditure; budget constraint; government expenditures; revenue collection; fiscal austerity; budget imbalances; reductions in public spending; excessive deficits; budgetary consolidation; composition of expenditure; reduction in public spending; structural adjustment; increase in capital spending; fiscal tightening; expenditure categories; fiscal surplus; budgetary allocations;

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References

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