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The macroeconomics of public sector deficits : the case of Ghana

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Author Info
Islam, Roumeen
Wetzel, Deborah L.
Abstract

Ghana's economic program after independence emphasized public investment and spending as the road to growth, a strategy that led to recurring fiscal deficits and declining growth. Since the 1984 Economic Recovery Program, Ghana's fiscal deficits have declined and the public sector has been rationalized. Average growth rates have become positive. The authors provide two different definitions of the fiscal deficit in Ghana. The first, more conventional approach aggregates components of the public sector, including the central government, the social security and national insurance trust, state-owned enterprises, and the cocoa marketing board. The second way looks at the total financing flows to the public sector. Data on the central government debt are supplemented with data on the claims of the central bank and banking system against state-owned enterprises and data on public external debt. The authors examine the ways Ghana chose to finance its deficits and how these affected the financial side of the economy. They found that : 1) the fiscal deficit has had only little effect on private consumption; 2) public sector investment in Ghana has mostly substituted for private investment; and 3) the fiscal deficit had a significant negative effect on the external side. The official real exchange rate tended to appreciate, the trade balance worsened, and the black market premium rose.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 672.

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Date of creation: 31 May 1991
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Handle: RePEc:wbk:wbrwps:672

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Related research
Keywords: Economic Stabilization; National Governance; Economic Theory&Research; Public Sector Economics&Finance; Banks&Banking Reform;

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  1. Feldstein, Martin, 1982. "Government deficits and aggregate demand," Journal of Monetary Economics, Elsevier, vol. 9(1), pages 1-20. [Downloadable!] (restricted)
    Other versions:
  2. Easterly, William R., 1989. "Fiscal adjustment and deficit financing during the debt crisis," Policy Research Working Paper Series 138, The World Bank. [Downloadable!]
  3. Aschauer, David Alan, 1985. "Fiscal Policy and Aggregate Demand," American Economic Review, American Economic Association, vol. 75(1), pages 117-27, March. [Downloadable!] (restricted)
  4. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December. [Downloadable!] (restricted)
  5. R. Glenn Hubbard & Kenneth L. Judd, 1986. "Liquidity Constraints, Fiscal Policy, and Consumption," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 17(1986-1), pages 1-60. [Downloadable!]
  6. van Wijnbergen, S., 1982. "Stagflationary effects of monetary stabilization policies : A quantitative analysis of South Korea," Journal of Development Economics, Elsevier, vol. 10(2), pages 133-169, April. [Downloadable!] (restricted)
  7. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January. [Downloadable!] (restricted)
  8. 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.. [Downloadable!] (restricted)
  9. Boskin, Michael J, 1982. "Federal Government Deficits: Some Myths and Realities," American Economic Review, American Economic Association, vol. 72(2), pages 296-303, May. [Downloadable!] (restricted)
  10. Martin Feldstein, 1988. "The Effects of Fiscal Policies When Incomes are Uncertain: A Contradiction to Ricardian Equivalence," NBER Working Papers 2062, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Dornbusch, Rudiger, 1977. "Inflation, Capital, and Deficit Finance," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 9(1), pages 141-50, February. [Downloadable!] (restricted)
  12. Robert E. Hall & Frederic S. Mishkin, 1982. "The Sensitivity of Consumption to Transitory Income: Estimates from Panel Data on Households," NBER Working Papers 0505, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. James Tobin & Willem H. Buiter, 1974. "Long Run Effects of Fiscal and Monetary Policy on Aggregate Demand," Cowles Foundation Discussion Papers 384, Cowles Foundation, Yale University. [Downloadable!]
  14. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-47, April. [Downloadable!] (restricted)
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  15. Seater, John J. & Mariano, Roberto S., 1985. "New tests of the life cycle and tax discounting hypotheses," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 195-215, March. [Downloadable!] (restricted)
  16. Fumio Hayashi, 1979. "The Permanent Income Hypothesis: Estimation and Testing," Discussion Papers 484, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  17. B. Douglas Bernheim, 1987. "Ricardian Equivalence: An Evaluation of Theory and Evidence," NBER Chapters, in: NBER Macroeconomics Annual 1987, Volume 2, pages 263-316 National Bureau of Economic Research, Inc. [Downloadable!]
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  18. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall. [Downloadable!]
  19. Easterly, William, 1989. "A consistency framework for macroeconomic analysis," Policy Research Working Paper Series 234, The World Bank. [Downloadable!]
  20. Marshall, Jorge & Schmidt-Hebbel, Klaus, 1989. "Economic and policy determinants of public sector deficits," Policy Research Working Paper Series 321, The World Bank. [Downloadable!]
  21. Buiter, Willem H, 1988. "Some Thoughts on the Role of Fiscal Policy in Stabilization and Structural Adjustment in Developing Countries," CEPR Discussion Papers 260, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  22. Blinder, Alan S. & Solow, Robert M., 1973. "Does fiscal policy matter?," Journal of Public Economics, Elsevier, vol. 2(4), pages 319-337. [Downloadable!] (restricted)
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