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Public Sector Deficits and Macroeconomic Stability in Developing Countries

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  • Sebastian Edwards

Abstract

This paper analyzes Latin America's experience with fiscal adjustment during the last decade. The paper discusses in detail how some countries -- most notably Argentina, Chile and Mexico -- were successfully able to eliminate their fiscal deficits in a relatively short period of time. Their experiences with tax reform and expenditure reduction are analyzed, and some political economy angles of the fiscal adjustment process are emphasized. The paper also discusses the interaction between privatization and fiscal adjustment. An analysis of the relationship between social security systems and fiscal imbalances is provided. In particular, the Chilean pension system reform -- which replaced an insolvent and inefficient pay-as- you-go system with a fully funded one administered by private companies -- is analyzed in some detail. The paper concludes with a discussion of the main lessons from the Latin American reforms for the transitional economies and other reforming countries.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5407.

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Date of creation: Jan 1996
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Publication status: published as Budget Deficits and Debt: Issues and Options, Jackson Hole: Federal Reserve Bank of Kansas City, 1995.
Handle: RePEc:nbr:nberwo:5407

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  1. Barro, Robert J, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 407-43, May.
  2. Rudiger Dornbusch & Sebastian Edwards, 1989. "Macroeconomic Populism in Latin America," NBER Working Papers 2986, National Bureau of Economic Research, Inc.
  3. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
  4. King, Robert G & Levine, Ross, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 717-37, August.
  5. Dornbusch, Rudiger & Edwards, Sebastian, 1989. "The macroeconomics of populism in Latin America," Policy Research Working Paper Series 316, The World Bank.
  6. Rebelo, Sergio, 1991. "Long-Run Policy Analysis and Long-Run Growth," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 500-521, June.
  7. Haque, Nadeem U. & Montiel, Peter, 1991. "Capital mobility in developing countries: Some empirical tests," World Development, Elsevier, vol. 19(10), pages 1391-1398, October.
  8. Edwards, Sebastian & Edwards, Alejandra Cox, 1991. "Monetarism and Liberalization," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226184890, October.
  9. Peter Diamond, 2004. "Social Security," American Economic Review, American Economic Association, vol. 94(1), pages 1-24, March.
  10. Dornbusch, Rudiger, 1992. "Lessons from Experiences with High Inflation," World Bank Economic Review, World Bank Group, vol. 6(1), pages 13-31, January.
  11. Sala-I-Martin, X., 1992. "Public Welfare and Growth," Papers 666, Yale - Economic Growth Center.
  12. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  13. Rolf J.Lüders, 1991. "Massive Divestiture And Privatization Lessons From Chile," Contemporary Economic Policy, Western Economic Association International, vol. 9(4), pages 1-19, October.
  14. Salvador Valdés & Peter Diamond, . "Social Security Reforms in Chile," Documentos de Trabajo 161, Instituto de Economia. Pontificia Universidad Católica de Chile..
  15. McGreevey, W., 1990. "Social security in Latin America: issues and options for World Bank," World Bank - Discussion Papers 110, World Bank.
  16. De Long, J Bradford & Summers, Lawrence H, 1991. "Equipment Investment and Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 445-502, May.
  17. Alex Cukierman & Sebastian Edwards & Guido Tabellini, 1989. "Seigniorage and Political Instability," NBER Working Papers 3199, National Bureau of Economic Research, Inc.
  18. Jeffrey A. Frankel, 1985. "International Capital Mobility and Crowding Out in the U.S. Economy: Imperfect Integration of Financial Markets or of Goods Markets?," NBER Working Papers 1773, National Bureau of Economic Research, Inc.
  19. Sebastian Edwards, 1991. "Trade Orientation, Distortions and Growth in Developing Countries," NBER Working Papers 3716, National Bureau of Economic Research, Inc.
  20. Alwyn Young, 1994. "The Tyranny of Numbers: Confronting the Statistical Realities of the East Asian Growth Experience," NBER Working Papers 4680, National Bureau of Economic Research, Inc.
  21. Gelb, Alan H., 1989. "Financial policies, growth, and efficiency," Policy Research Working Paper Series 202, The World Bank.
  22. Kiguel, Miguel A., 1991. "Inflation in Argentina: Stop and go since the Austral plan," World Development, Elsevier, vol. 19(8), pages 969-986, August.
  23. Alesina, Alberto & Tabellini, Guido, 1988. "Credibility and politics," European Economic Review, Elsevier, vol. 32(2-3), pages 542-550, March.
  24. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October.
  25. Petrecolla, Alberto & Porto, Alberto & Gerchunoff, Pablo, 1993. "Privatization in Argentina," The Quarterly Review of Economics and Finance, Elsevier, vol. 33(Supplemen), pages 67-93.
  26. Sebastian Edwards & Guido Tabellini, 1991. "Political Instability, Political Weakness and Inflation: An Empirical Analysis," NBER Working Papers 3721, National Bureau of Economic Research, Inc.
  27. Sebastian Edwards, 1995. "Why are Saving Rates so Different Across Countries?: An International Comparative Analysis," NBER Working Papers 5097, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Benjamin E. Diokno, 2010. "Philippine fiscal behavior in recent history," Philippine Review of Economics, University of the Philippines School of Economics and Philippine Economic Society, vol. 47(1), pages 39-87, June.
  2. Martin Uribe, 1996. "The Tequila effect: theory and evidence from Argentina," International Finance Discussion Papers 552, Board of Governors of the Federal Reserve System (U.S.).

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