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Structural factors associated with primary fiscal balances in developing countries

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  • Anthony Birchwood
  • Rudolph Matthias

Abstract

The study explores the conditions under which a government in a developing country is likely to run a balanced or surplus budget. We contend that primary fiscal deficits are likely to persist where the economy is too saving constrained to raise private sector investment. To conduct the investigation, a logit model is applied to a sample of developing countries to see whether the saving constraints are associated with the fiscal stance of governments. Accordingly, income level, growth, external current account balance and foreign direct investment are used as indicators of the saving constraint. With the exception of economic growth, positive developments in these variables turned out to be significant to the likelihood of the government adopting a surplus budget.

Suggested Citation

  • Anthony Birchwood & Rudolph Matthias, 2007. "Structural factors associated with primary fiscal balances in developing countries," Applied Economics, Taylor & Francis Journals, vol. 39(10), pages 1235-1243.
    • Handle: RePEc:taf:applec:v:39:y:2007:i:10:p:1235-1243
    DOI: 10.1080/00036840500447716
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    References listed on IDEAS

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    1. Richard Clarida & Joe Prendergast, 1999. "Fiscal Stance and the Real Exchange: Some Empirical Estimates," NBER Working Papers 7077, National Bureau of Economic Research, Inc.
    2. William Easterly & Luis Servén, 2003. "The Limits of Stabilization : Infrastructure, Public Deficits, and Growth in Latin America," World Bank Publications - Books, The World Bank Group, number 14456, April.
    3. Cuddington, John T., 1997. "Analyzing the sustainability of fiscal deficitsin developing countries," Policy Research Working Paper Series 1784, The World Bank.
    4. Jane Marrinan & Eric Van Wincoop, 1993. "Public And Private Savings And Investments," Boston College Working Papers in Economics 259, Boston College Department of Economics.
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