Fiscal policy and economic adjustment in emerging economies: what happens after the economic reforms?
Fiscal reform in developing countries has succeeded in increasing tax revenue from indirect taxes. Here it is assumed that those taxes will be transferred backwards to wages rather than forward to prices. This implies a certain degree of flexibility of nominal wages, which, however is not so unrealistic in informal sectors. Under these assumptions it is shown how some simple fiscal policies, such as a balanced budget expansion or an adjustment to a shock to the current account, work. The adjustment to a shock to the current account under the rule of balanced budget appears particularly painful under these assumptions.
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|Date of revision:||Nov 2008|
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- Jan Kregel, 2004. "Can we create a stable international financial environment that ensures net resource transfers to developing countries?," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 26(4), pages 573-590, October.
- Roberto Frenkel & Lance Taylor, 2006. "Real Exchange Rate, Monetary Policy and Employment," Working Papers 19, United Nations, Department of Economics and Social Affairs.
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