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The macroeconomics of public sector deficits : a synthesis

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  • Easterly, William
  • Schmidt-Hebbel, Klaus

Abstract

Fiscal deficits have been at the forefront of macroeconomic adjustment in the 1980s, both in developing and developed countries. Fiscal deficits were blamed in good part for the assortment of ills that beset developing countries in the 1980s: over-indebtedness leading to the debt crisis beginning in 1982, high inflation, and poor investment and growth performance. This paper will examine the evidence for the macroeconomic effects of fiscal deficits, using the results of a set of ten case studies done for the Bank research project,"The Macroeconomics of Public Sector Deficits."The ten cases were Argentina, Chile, Colombia, Cote d'Ivoire, Ghana, Morocco, Mexico, Pakistan, Thailand and Zimbabwe. The authors first present a summary of the stylized facts on fiscal adjustment. Then the results are presented of the decomposition of the deficit in the case studies. The results of the case studies are then used to relate deficits to macro economic imbalances: first by analyzing the relationship of deficits to private consumption and investment; and second by examining the relationship of deficits to external imbalances. While macroeconomic imbalances are clearly interrelated, the authors assume the effects of such an interrelationship are small and use a sequence of partial equilibrium analysis of each type of imbalance.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 775.

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Date of creation: 31 Oct 1991
Date of revision:
Handle: RePEc:wbk:wbrwps:775

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Related research

Keywords: Public Sector Economics&Finance; Environmental Economics&Policies; Banks&Banking Reform; Economic Stabilization; Economic Theory&Research;

References

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  1. Rodriguez, Carlos Alfredo, 1989. "The external effects of public sector deficits," Policy Research Working Paper Series 299, The World Bank.
  2. N. Gregory Mankiw, 1987. "The Optimal Collection of Seigniorage: Theory and Evidence," NBER Working Papers 2270, National Bureau of Economic Research, Inc.
  3. Corbo, Vittorio & Schmidt-Hebbel, Klaus, 1991. "Public policies and saving in developing countries," Journal of Development Economics, Elsevier, vol. 36(1), pages 89-115, July.
  4. Carl E. Walsh, 1984. "Optimal Taxation by the Monetary Authority," NBER Working Papers 1375, National Bureau of Economic Research, Inc.
  5. Barro, R.J. & Martin, X.S., 1990. "World Real Interest Rates," RCER Working Papers 227, University of Rochester - Center for Economic Research (RCER).
    • Robert J. Barro & Xavier Sala-i-Martin, 1990. "World Real Interest Rates," NBER Chapters, in: NBER Macroeconomics Annual 1990, Volume 5, pages 15-74 National Bureau of Economic Research, Inc.
  6. Lucas, Robert E, Jr & Stokey, Nancy L, 1987. "Money and Interest in a Cash-in-Advance Economy," Econometrica, Econometric Society, vol. 55(3), pages 491-513, May.
  7. Haque, Nadeem U. & Montiel, Peter, 1991. "The macroeconomics of public sector deficits : the case of Pakistan," Policy Research Working Paper Series 673, The World Bank.
  8. Khan, Mohsin S. & Reinhart, Carmen M., 1990. "Private investment and economic growth in developing countries," World Development, Elsevier, vol. 18(1), pages 19-27, January.
  9. David Aschauer, 1988. "Is public expenditure productive?," Staff Memoranda 88-7, Federal Reserve Bank of Chicago.
  10. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
  11. Rama, Martin, 1990. "Empirical investment equations in developing countries," Policy Research Working Paper Series 563, The World Bank.
  12. Schmidt-Hebbel, Klaus & Webb, Steven B. & Corsetti, Giancarlo, 1991. "Household saving in developing countries : first cross-country evidence," Policy Research Working Paper Series 575, The World Bank.
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Citations

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Cited by:
  1. Zeinab Partow, . "La Relación Inflación-Crecimiento: Un Resúmen con algunas Implicaciones para Colombia," Borradores de Economia 023, Banco de la Republica de Colombia.
  2. Easterly, William & Mauro, Paolo & Schmidt-Hebbel, Klaus, 1992. "Money demand and seignorage - maximizing inflation," Policy Research Working Paper Series 1049, The World Bank.
  3. Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 2003. "Government Finance in the Wake of Currency Crises," NBER Working Papers 9786, National Bureau of Economic Research, Inc.
  4. Marshall, Jorge & Schmidt-Hebbel, Klaus, 1989. "Economic and policy determinants of public sector deficits," Policy Research Working Paper Series 321, The World Bank.
  5. Soledad Arellano & Felipe Larraín, 1996. "Tipo de Cambio Real y Gasto Público: Un Modelo Econométrico para Chile," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 33(98), pages 47-76.
  6. Kiguel, Miguel A., 1992. "Exchange rate policy, the real exchange rate, and inflation : lessons from Latin America," Policy Research Working Paper Series 880, The World Bank.
  7. Thorne, Alfredo E. & Dastgheib, Azita, 1992. "Public sector debt, fiscal deficits, and economic adjustment : a comparative study of six EMENA countries," Policy Research Working Paper Series 840, The World Bank.
  8. ZeinabPartow, 2005. "La Relación Inflación-Crecimiento: Un Resumen Con Algunas Implicaciones Para Colombia," BORRADORES DE ECONOMIA 003079, BANCO DE LA REPÚBLICA.
  9. Stevenson, Gail, 1992. "How public sector pay and employment affect labor markets : research issues," Policy Research Working Paper Series 944, The World Bank.
  10. Calvo, Guillermo & Vegh, Carlos, 1992. "Currency Substitution in Developing Countries: An Introduction," MPRA Paper 20338, University Library of Munich, Germany.
  11. Montiel, Peter J., 1993. "Fiscal aspects of developing countrydebt problems and debt and debt-service reduction operations : a conceptual framework," Policy Research Working Paper Series 1073, The World Bank.
  12. Bogetic, Zeljko & Hillman, Arye L., 1994. "The tax base in transition : the case of Bulgaria," Policy Research Working Paper Series 1267, The World Bank.
  13. Sanogo, Issa & Gyengani, Zakaria, 2008. "Private investment in guinea, does macro-instability matter? A comparative analysis," MPRA Paper 11606, University Library of Munich, Germany.
  14. Bouton, Lawrence & Jones, Christine & Kiguel, Miguel, 1994. "Macroeconomic reform and growth in Africa : adjustment in Africa revisited," Policy Research Working Paper Series 1394, The World Bank.
  15. Le Houerou, Philippe & Sierra, Hector, 1993. "Estimating quasi-fiscal deficits in a consistency framework : the case of Madagascar," Policy Research Working Paper Series 1105, The World Bank.

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