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Fiscal policy and economic adjustment in emerging economies: what happens after the economic reforms?

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  • Domenica Tropeano

    (University of Macerata)

Abstract

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.

Suggested Citation

  • Domenica Tropeano, 2006. "Fiscal policy and economic adjustment in emerging economies: what happens after the economic reforms?," Working Papers 30-2006, Macerata University, Department of Finance and Economic Sciences, revised Nov 2008.
  • Handle: RePEc:mcr:wpdief:wpaper00030
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    References listed on IDEAS

    as
    1. Jan Kregel, 2004. "Can we create a stable international financial environment that ensures net resource transfers to developing countries?," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 26(4), pages 573-590.
    2. Roberto Frenkel & Lance Taylor, 2006. "Real Exchange Rate, Monetary Policy and Employment," Working Papers 19, United Nations, Department of Economics and Social Affairs.
    3. Cimoli, Mario & Primi, Annalisa & Pugno, Maurizio, 2006. "Un modelo de bajo crecimiento: la informalidad como restricción estructural," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), April.
    4. James K. Galbraith & Hyunsub Kum, 2003. "Inequality and Economic Growth: A Global View Based on Measures of Pay," CESifo Economic Studies, CESifo, vol. 49(4), pages 527-556.
    5. Cornia, Giovanni Andrea & Kiiski, Sampsa, 2001. "Trends in Income Distribution in the Post-World War II Period Evidence and Interpretation," WIDER Working Paper Series 089, World Institute for Development Economic Research (UNU-WIDER).
    6. José A. Pagán & Gökçe Soydemir & José A. Tijerina-Guajardo, 2001. "The Evolution Of Vat Rates And Government Tax Revenue In Mexico," Contemporary Economic Policy, Western Economic Association International, vol. 19(4), pages 424-433, October.
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    Keywords

    income distribution.; Fiscal policy; multiplier; developing countries; tax shifting; Latin America;

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