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Fiscal Policy and Financial Development

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  • David Hauner

Abstract

We examine the effects of public sector borrowing from the domestic banking system on financial development in middle-income countries. While these countries'' external debt has been falling, the share of bank credit absorbed by the public sector has been rising rapidly. We argue that this runs the risk of slowing financial development by affecting structural characteristics of the banking systems. We find empirical evidence that too much public sector borrowing harms financial deepening, and that banks mainly lending to the public sector tend to be more profitable but less efficient. We note that these effects add to the costs of fiscal prolificacy.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/26.

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Length: 26
Date of creation: 01 Jan 2006
Date of revision:
Handle: RePEc:imf:imfwpa:06/26

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Related research

Keywords: Bank soundness; Banking systems; Financial systems; Public sector borrowing requirements; public sector; banking; banking sector; bank credit; bank borrowing; banking system; deposit insurance; bank profitability; banking institutions; return on assets; interest expense; bank size; banking crises; banking sectors; net interest margin; bank crises; liability management; banking market; bank lending; banking supervision; bank ownership; macroeconomic stability; bank financing;

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References

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  1. Manmohan S. Kumar & Pablo Emilio Guidotti, 1991. "Domestic Public Debt of Externally Indebted Countries," IMF Occasional Papers 80, International Monetary Fund.
  2. Alex Trew, 2005. "Finance and Growth: A Critical Survey," CDMA Working Paper Series 200507, Centre for Dynamic Macroeconomic Analysis, revised 15 Apr 2006.
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  27. repec:rus:hseeco:123922 is not listed on IDEAS
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Citations

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Cited by:
  1. Halil Ibrahim Aydin & Cafer Kaplan & Mehtap Kesriyeli & Erdal Ozmen & Cihan Yalcin & Serkan Yigit, 2006. "Corporate Sector Financial Structure in Turkey : A Descriptive Analysis," Working Papers 0607, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  2. Brittle, Shane, 2009. "Ricardian Equivalence and the Efficacy of Fiscal Policy in Australia," Economics Working Papers wp09-10, School of Economics, University of Wollongong, NSW, Australia.
  3. S. M. Ali Abbas & Jakob Christensen, 2007. "The Role of Domestic Debt Markets in Economic Growth," IMF Working Papers 07/127, International Monetary Fund.
  4. F. Gulcin Ozkan & Ahmet Kipici & Mustafa Ismihan, 2010. "The Banking Sector, Government Bonds, and Financial Intermediation: The Case of Emerging Market Countries," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 46(4), pages 55-70, January.
  5. Klaus-Stefan Enders, 2007. "Egypt," IMF Working Papers 07/57, International Monetary Fund.
  6. Jerry Green & Laurence J. Kotlikoff, 2006. "On the General Relativity of Fiscal Language," Boston University - Department of Economics - Working Papers Series WP2006-036, Boston University - Department of Economics.
  7. Andrea F. Presbitero, 2012. "Domestic debt in Low-Income Countries," Economics Bulletin, AccessEcon, vol. 32(2), pages 1099-1112.
  8. Yuri Vladimirovich Sobolev & S. M. Ali Abbas, 2008. "High and Volatile Treasury Yields in Tanzania," IMF Working Papers 08/81, International Monetary Fund.

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