This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

When is fiscal adjustment an illusion?

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Easterly, William

Additional information is available for the following registered author(s):

Abstract

Fiscal adjustment is an illusion when it lowers the budget deficit or public debt but leaves the government's net worth unchanged, says the author. Conventional measures of the budget deficit largely measure the change in explicit public sector liabilities (debt). A more appropriate measure of the deficit would be the change in public sector net worth, but many criticize this concept as impossible to measure. The author takes a positive, rather than normative, approach to the net worth definition of fiscal balance. A simple model shows that when an outside agent forces a reduction in a government's conventional deficit (debt accumulation), the government will respond by lowering its asset accumulation or by increasing hidden liabilities. That leaves net worth unchanged, so fiscal adjustment is an illusion. He performs some simple empirical tests on the observational predictions of the model, examining a sample of countries with World Bank and InternationalMonetary Fund adjustment programs and case studies of Maastricht Euro countries. The results confirm the model predictions: Fiscal adjustment in these countries was at least partly an illusion.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help file. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/1999/09/14/000094946_99060201522384/Rendered/PDF/multi_page.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2109.

Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Length:
Date of creation: 31 May 1999
Date of revision:
Handle: RePEc:wbk:wbrwps:2109

Contact details of provider:
Postal: 1818 H Street, N.W., Washington, DC 20433
Email:
Web page: http://www.worldbank.org/
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Roula I. Yazigi).

Related research
Keywords: Environmental Economics&Policies Payment Systems&Infrastructure Banks&Banking Reform Economic Theory&Research Public Sector Economics&Finance Economic Theory&Research National Governance Public Sector Economics&Finance Economic Stabilization Environmental Economics&Policies

Other versions of this item:

References listed on IDEAS
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.:
  1. George Kopits, 1997. "Are Europe's Social Security Finances Compatible with EMU?," IMF Policy Discussion Papers 97/3, International Monetary Fund.
  2. Buiter, Willem H & Corsetti, Giancarlo & Roubini, Nouriel, 1992. "`Excessive Deficits': Sense and Nonsense in the Treaty of Maastricht," CEPR Discussion Papers 750, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. Pritchett, Lant, 1996. "Mind your P's and Q's : the cost of public investment is not the value of public capital," Policy Research Working Paper Series 1660, The World Bank. [Downloadable!]
  4. Blejer, Mario I & Cheasty, Adrienne, 1991. "The Measurement of Fiscal Deficits: Analytical and Methodological Issues," Journal of Economic Literature, American Economic Association, vol. 29(4), pages 1644-78, December. [Downloadable!] (restricted)
  5. Eisner, Robert, 1984. "Which Budget Deficit? Some Issues of Measurement and Their Implications," American Economic Review, American Economic Association, vol. 74(2), pages 138-43, May. [Downloadable!] (restricted)
  6. G. A. Mackenzie & Peter Stella, 1996. "Quasi-Fiscal Operations of Public Financial Institutions," IMF Occasional Papers 142, International Monetary Fund.
  7. Henning Bohn & Robert P. Inman, . "Balanced Budget Rules and Public Deficits: Evidence from the U.S. States (Reprint 060)," Rodney L. White Center for Financial Research Working Papers 10-96, Wharton School Rodney L. White Center for Financial Research.
  8. Alberto Alesina & Tamim Bayoumi, 1996. "The Costs and Benefits of Fiscal Rules: Evidence from U.S. States," NBER Working Papers 5614, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Barry Eichengreen & Charles Wyplosz, 1998. "The Stability Pact: more than a minor nuisance?," Economic Policy, CEPR, CES, MSH, vol. 13(26), pages 65-113, 04. [Downloadable!] (restricted)
  10. Eisner, Robert & Pieper, Paul J, 1986. "A New View of the Federal Debt and Budget Deficits: Reply," American Economic Review, American Economic Association, vol. 76(5), pages 1156-57, December. [Downloadable!] (restricted)
  11. Staff Team, 1996. "Zaire - Background Information and Statistical Data," IMF Staff Country Reports 96/28, International Monetary Fund.
  12. Henning Bohn & Robert P. Inman, 1996. "Balanced Budget Rules and Public Deficits: Evidence from the U.S. States," NBER Working Papers 5533, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  13. Poterba, James M, 1994. "State Responses to Fiscal Crises: The Effects of Budgetary Institutions and Politics," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 799-821, August. [Downloadable!] (restricted)
    Other versions:
  14. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 1998. "Infraestructure Franchising and Government Guarantees," Documentos de Trabajo 29, Centro de Economía Aplicada, Universidad de Chile.
  15. Alesina, A. & Perotti, R., 1995. "Fiscal Expansions and Adjustments in OECD Countries," Discussion Papers 1995_25, Columbia University, Department of Economics.
  16. Eichengreen, Barry & von Hagen, Jürgen, 1995. "Fiscal Policy and Monetary Union: Federalism, Fiscal Restrictions and the No-Bailout Rule," CEPR Discussion Papers 1247, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  17. Kopits, George, 1997. "Are Europe's Social Security Finances Compatible with EMU?," IMF Papers on Policy Analysis and Assessments 97/3, International Monetary Fund. [Downloadable!]
  18. Bohn, Henning, 1992. "Budget deficits and government accounting," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 37, pages 1-83, December. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, 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.)

  1. Buti, Marco & Martins, Joao Nogueira & Turrini, Alessandro Antonio, 2006. "From Deficits to Debt and Back: Political Incentives under Numerical Fiscal Rules," CEPR Discussion Papers 5809, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Roel M.W.J. Beetsma & Frederick van der Ploeg, 2007. "Partisan Public Investment and Debt: The Case for Fiscal Restrictions," Economics Working Papers ECO2007/37, European University Institute. [Downloadable!]
  3. Pritchett, Lant, 2000. "The tyranny of concepts - CUDIE (Cumulated, Depreciated Investment Effort) is NOT capital," Policy Research Working Paper Series 2341, The World Bank. [Downloadable!]
    Other versions:
  4. Xavier Debrun, 2000. "Fiscal Rules in a Monetary Union: A Short-Run Analysis," Open Economies Review, Springer, vol. 11(4), pages 323-358, October. [Downloadable!] (restricted)
  5. Beetsma, Roel & van der Ploeg, Frederick, 2007. "The Political Economy of Public Investment," CEPR Discussion Papers 6090, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  6. Paul R. Masson & Catherine A. Pattillo, . "Monetary Union in West Africa: An Agency of Restraint for Fiscal Policies," IMF Working Papers 01/34, International Monetary Fund. [Downloadable!]
    Other versions:
  7. James E. Alt & David Dreyer Lassen, 2003. "Fiscal Transparency and Fiscal Policy Outcomes in OECD Countries," EPRU Working Paper Series 03-02, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics. [Downloadable!]
  8. Easterly, William, 1999. "How did highly indebted poor countries become highly indebted? : reviewing two decades of debt relief," Policy Research Working Paper Series 2225, The World Bank. [Downloadable!]
  9. George Kopits & Theodore M. Barnhill, 2003. "Assessing Fiscal Sustainability Under Uncertainity," IMF Working Papers 03/79, International Monetary Fund. [Downloadable!]
  10. Milesi-Ferretti, Gian Maria, 2001. "Good, Bad or Ugly? On the Effects of Fiscal Rules with Creative Accounting," CEPR Discussion Papers 2663, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  11. Montiel, Peter & Serven, Luis, 2004. "Macroeconomic stability in developing countries - How much is enough?," Policy Research Working Paper Series 3456, The World Bank. [Downloadable!]
    Other versions:
  12. Kenji Moriyama & Gian Maria Milesi-Ferretti, 2004. "Fiscal Adjustment in EU Countries: A Balance Sheet Approach," IMF Working Papers 04/143, International Monetary Fund. [Downloadable!]
    Other versions:
  13. Jha, Raghbendra, 2001. "Macroeconomics of Fiscal Policy in Developing Countries," Departmental Working Papers 2001-05, Australian National University, Economics RSPAS. [Downloadable!]
  14. Manoj Atolia, 2003. "Tax Evasion, Public Investment, and Welfare Effects of a Tariff Reform," Working Papers wp2003_10_01, Department of Economics, Florida State University, revised Mar 2006. [Downloadable!]
  15. Ignacio Lozano & Hernán Rincón & Miguel Sarmiento & Jorge Ramos, 2008. "Regla fiscal cuantitativa para consolidar y blindar las finanzas públicas de Colombia," BORRADORES DE ECONOMIA 004597, BANCO DE LA REPÚBLICA. [Downloadable!]
    Other versions:
  16. William Easterly, 2001. "Growth Implosions and Debt Explosions: Do Growth Slowdowns Cause Public Debt Crises?," Contributions to Macroeconomics, Berkeley Electronic Press, vol. 1(contribut), pages 1013-1013. [Downloadable!] (restricted)
  17. Easter ly, William & Irwin, Timothy & Serven, Luis, 2007. "Walking up the down escalator : public investment and fiscal stability," Policy Research Working Paper Series 4158, The World Bank. [Downloadable!]
  18. Gábor P. Kiss, 2007. "One-off and off-budget items: An alternative approach," MNB Conference Volume, Magyar Nemzeti Bank (The Central Bank of Hungary), vol. 1(1), pages 18-27, December. [Downloadable!]
Statistics
Access and download statistics

Did you know? All RePEc services are meant to be be free forever, as they are all run by volunteers.

This page was last updated on 2008-7-7.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.