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Big Government, High Debt, and Fiscal Adjustment in Small States

Author

Listed:
  • Rui Ota
  • Ms. Stephanie C Medina Cas

Abstract

Using a new fiscal dataset for small states, this paper analyzes the link between country size, government size, debt, and economic performance. It finds that on average small states have larger governments and higher public debt. Although there are intrinsic factors that explain why governments are bigger in small states, those with smaller governments and lower public debt tend to grow faster and are less vulnerable. Large fiscal adjustments, primarily through expenditure restraint, can underpin growth, although sometimes other elements can also impact. Since better governance is associated with lower debt, fiscal adjustment should be supported by governance improvements.

Suggested Citation

  • Rui Ota & Ms. Stephanie C Medina Cas, 2008. "Big Government, High Debt, and Fiscal Adjustment in Small States," IMF Working Papers 2008/039, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2008/039
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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=21559
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    References listed on IDEAS

    as
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    Cited by:

    1. Horscroft, Virginia, 2014. "Public sectors in the pacific islands : are they'too big'and do they'crowd out'the private sector ?," Policy Research Working Paper Series 7102, The World Bank.
    2. Furceri, Davide & Poplawski Ribeiro, Marcos, 2008. "Government spending volatility and the size of nations," Working Paper Series 924, European Central Bank.
    3. Marianne, Ojo, 2015. "Long term funding and regulation: facilitating financial stability and development (low income developing countries)," MPRA Paper 63406, University Library of Munich, Germany.
    4. Davide Furceri & Marcos Poplawski Ribeiro, 2008. "Government Consumption Volatility and Country Size," Working Papers 2008-17, CEPII research center.

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