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Public Sector Deficits and Macroeconomic Stability in Developing Countries

  • Sebastian Edwards

This paper analyzes Latin America's experience with fiscal adjustment during the last decade. The paper discusses in detail how some countries -- most notably Argentina, Chile and Mexico -- were successfully able to eliminate their fiscal deficits in a relatively short period of time. Their experiences with tax reform and expenditure reduction are analyzed, and some political economy angles of the fiscal adjustment process are emphasized. The paper also discusses the interaction between privatization and fiscal adjustment. An analysis of the relationship between social security systems and fiscal imbalances is provided. In particular, the Chilean pension system reform -- which replaced an insolvent and inefficient pay-as- you-go system with a fully funded one administered by private companies -- is analyzed in some detail. The paper concludes with a discussion of the main lessons from the Latin American reforms for the transitional economies and other reforming countries.

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File URL: http://www.nber.org/papers/w5407.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5407.

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Date of creation: Jan 1996
Date of revision:
Publication status: published as Budget Deficits and Debt: Issues and Options, Jackson Hole: Federal Reserve Bank of Kansas City, 1995.
Handle: RePEc:nbr:nberwo:5407
Note: IFM
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Web page: http://www.nber.org
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  1. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  2. Sala-I-Martin, X., 1992. "Public Welfare and Growth," Papers 666, Yale - Economic Growth Center.
  3. Sergio T. Rebelo, 1990. "Long Run Policy Analysis and Long Run Growth," NBER Working Papers 3325, National Bureau of Economic Research, Inc.
  4. Alesina, Alberto & Tabellini, Guido, 1988. "Credibility and politics," European Economic Review, Elsevier, vol. 32(2-3), pages 542-550, March.
  5. Alex Cukierman & Sebastian Edwards & Guido Tabellini, 1989. "Seigniorage and Political Instability," NBER Working Papers 3199, National Bureau of Economic Research, Inc.
  6. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  7. Kiguel, Miguel A., 1991. "Inflation in Argentina: Stop and go since the Austral plan," World Development, Elsevier, vol. 19(8), pages 969-986, August.
  8. Dornbusch, Rudiger, 1992. "Lessons from Experiences with High Inflation," World Bank Economic Review, World Bank Group, vol. 6(1), pages 13-31, January.
  9. Sebastian Edwards, 1991. "Trade Orientation, Distortions and Growth in Developing Countries," NBER Working Papers 3716, National Bureau of Economic Research, Inc.
  10. Robert J. Barro, 1989. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc.
  11. Peter Diamond, 2004. "Social Security," American Economic Review, American Economic Association, vol. 94(1), pages 1-24, March.
  12. De Long, J Bradford & Summers, Lawrence H, 1991. "Equipment Investment and Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 445-502, May.
  13. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  14. McGreevey, W., 1990. "Social security in Latin America: issues and options for World Bank," World Bank - Discussion Papers 110, World Bank.
  15. Jeffrey A. Frankel, 1985. "International capital mobility and crowding-out in the U.S. economy: imperfect integration of financial markets or of goods markets?," Proceedings, Federal Reserve Bank of St. Louis, pages 33-74.
  16. Edwards, Sebastian & Edwards, Alejandra Cox, 1991. "Monetarism and Liberalization," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226184890, July.
  17. Rudiger Dornbusch & Sebastian Edwards, 1991. "The Macroeconomics of Populism in Latin America," NBER Books, National Bureau of Economic Research, Inc, number dorn91-1, September.
  18. Salvador Valdés & Peter Diamond, . "Social Security Reforms in Chile," Documentos de Trabajo 161, Instituto de Economia. Pontificia Universidad Católica de Chile..
  19. Rolf J.Lüders, 1991. "Massive Divestiture And Privatization Lessons From Chile," Contemporary Economic Policy, Western Economic Association International, vol. 9(4), pages 1-19, October.
  20. Haque, Nadeem U. & Montiel, Peter, 1991. "Capital mobility in developing countries: Some empirical tests," World Development, Elsevier, vol. 19(10), pages 1391-1398, October.
  21. Sebastian Edwards & Guido Tabellini, 1991. "Political Instability, Political Weakness and Inflation: An Empirical Analysis," NBER Working Papers 3721, National Bureau of Economic Research, Inc.
  22. Rudiger Dornbusch & Sebastian Edwards, 1989. "Macroeconomic Populism in Latin America," NBER Working Papers 2986, National Bureau of Economic Research, Inc.
  23. Alwyn Young, 1994. "The Tyranny of Numbers: Confronting the Statistical Realities of the East Asian Growth Experience," NBER Working Papers 4680, National Bureau of Economic Research, Inc.
  24. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  25. repec:fth:wobaco:1083 is not listed on IDEAS
  26. Gelb, Alan H., 1989. "Financial policies, growth, and efficiency," Policy Research Working Paper Series 202, The World Bank.
  27. Petrecolla, Alberto & Porto, Alberto & Gerchunoff, Pablo, 1993. "Privatization in Argentina," The Quarterly Review of Economics and Finance, Elsevier, vol. 33(Supplemen), pages 67-93.
  28. Sebastian Edwards, 1995. "Why are Saving Rates so Different Across Countries?: An International Comparative Analysis," NBER Working Papers 5097, National Bureau of Economic Research, Inc.
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