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New Evidence on Fiscal Adjustment and Growth in Transition Economies

Listed author(s):
  • Alex Segura-Ubiergo

    ()

    (Fiscal Affairs Department, International Monetary Fund, 700 19th Street, N. W., Washington D.C., 20431, USA.)

  • Alejandro Simone

    ()

    (Fiscal Affairs Department, International Monetary Fund, 700 19th Street, N. W., Washington D.C., 20431, USA.)

  • Sanjeev Gupta

    ()

    (Fiscal Affairs Department, International Monetary Fund, 700 19th Street, N. W., Washington D.C., 20431, USA.)

  • Qiang Cui

    ()

    (Fiscal Affairs Department, International Monetary Fund, 700 19th Street, N. W., Washington D.C., 20431, USA.)

This paper analyzes the relationship between fiscal adjustment and real GDP growth in a panel of 26 transition economies during 1992–2001. It finds a positive and statistically significant relationship between fiscal adjustment and real GDP growth that is robust to different model specifications and estimation methods when initial conditions, stabilization policies, and institutions are controlled for. Fiscal adjustment promotes growth in both the short and the long run in countries that have not yet attained macroeconomic stability. However, for countries that have achieved credible stabilization, additional fiscal adjustment is unlikely to yield large benefits in growth.

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Article provided by Palgrave Macmillan & Association for Comparative Economic Studies in its journal Comparative Economic Studies.

Volume (Year): 52 (2010)
Issue (Month): 1 (March)
Pages: 18-37

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Handle: RePEc:pal:compes:v:52:y:2010:i:1:p:18-37
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  1. Stanley Fischer & Ratna Sahay, 2000. "The Transition Economies After Ten Years," IMF Working Papers 00/30, .
  2. Oleh Havrylyshyn & Ron van Rooden, 2003. "Institutions Matter in Transition, But So Do Policies," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 45(1), pages 2-24, March.
  3. Alberto Alesina & Silvia Ardagna & Roberto Perotti & Fabio Schiantarelli, 2002. "Fiscal Policy, Profits, and Investment," American Economic Review, American Economic Association, vol. 92(3), pages 571-589, June.
  4. C. John McDermott & Robert F. Wescott, 1996. "An Empirical Analysis of Fiscal Adjustments," IMF Staff Papers, Palgrave Macmillan, vol. 43(4), pages 725-753, December.
  5. Stanley Fischer & Ratna Sahay, 2000. "The Transition Economies After Ten Years," NBER Working Papers 7664, National Bureau of Economic Research, Inc.
  6. Gupta, Sanjeev & Clements, Benedict & Baldacci, Emanuele & Mulas-Granados, Carlos, 2005. "Fiscal policy, expenditure composition, and growth in low-income countries," Journal of International Money and Finance, Elsevier, vol. 24(3), pages 441-463, April.
  7. Ricardo Hausmann & Lant Pritchett & Dani Rodrik, 2005. "Growth Accelerations," Journal of Economic Growth, Springer, vol. 10(4), pages 303-329, December.
  8. Vladimir Popov, 2000. "Shock Therapy Versus Gradualism: The End Of The Debate (Explaining The Magnitude Of Transformational Recession)," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 42(1), pages 1-57, April.
  9. Krueger, Gary & Ciolko, Marek, 1998. "A Note on Initial Conditions and Liberalization during Transition," Journal of Comparative Economics, Elsevier, vol. 26(4), pages 718-734, December.
  10. Rzonca, Andrzej & Cizkowicz, Piotr, 2005. "Non-Keynesian effects of fiscal contraction in new member states," Working Paper Series 0519, European Central Bank.
  11. Adam, Christopher S. & Bevan, David L., 2005. "Fiscal deficits and growth in developing countries," Journal of Public Economics, Elsevier, vol. 89(4), pages 571-597, April.
  12. repec:hrv:faseco:3353756 is not listed on IDEAS
  13. Alesina, Alberto Francesco & Perotti, Roberto & Tavares, Jose, 1998. "The Political Economy of Fiscal Adjustments," Scholarly Articles 12553724, Harvard University Department of Economics.
  14. Catriona Purfield, 2003. "Fiscal Adjustment in Transition Countries; Evidence From the 1990's," IMF Working Papers 03/36, .
  15. Sanjeev Gupta & Catherine A Pattillo & Kevin J Carey, 2005. "Sustaining Growth Accelerations and Pro-Poor Growth in Africa," IMF Working Papers 05/195, .
  16. Segura-Ubiergo,Alex, 2012. "The Political Economy of the Welfare State in Latin America," Cambridge Books, Cambridge University Press, number 9781107410664, January.
  17. Alberto Alesina & Roberto Perotti & José Tavares, 1998. "The Political Economy of Fiscal Adjustments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 197-266.
  18. Anders Åslund & Peter Boone & Simon Johnson, 1996. "How to Stabilize: Lessons from Post -communist Countries," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 217-314.
  19. Alberto Alesina & Roberto Perotti, 1997. "Fiscal Adjustments in OECD Countries: Composition and Macroeconomic Effects," IMF Staff Papers, Palgrave Macmillan, vol. 44(2), pages 210-248, June.
  20. von Hagen, Jurgen & Strauch, Rolf R, 2001. "Fiscal Consolidations: Quality, Economic Conditions, and Success," Public Choice, Springer, vol. 109(3-4), pages 327-346, December.
  21. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
  22. Fischer, Stanley & Sahay, Ratna & Vegh, Carlos A, 1996. "Economies in Transition: The Beginnings of Growth," American Economic Review, American Economic Association, vol. 86(2), pages 229-233, May.
  23. Robert R. Kaufman & Alex Segura-Ubiergo, 2005. "Globalization, Domestic Politics and Social Spending in Latin," Public Economics 0504009, EconWPA.
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