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Macroeconomics of Fiscal Policy in Developing Countries

  • Jha, Raghbendra

This paper considers some aspects of the effects of fiscal policy on macroeconomic adjustment in developing countries. First, the paper reviews the notion of the fiscal deficit in the partic ular context of developing countries. It then spells out the conditions under which the internal and external debts are sustainable and points out the role of the "twin deficits". The paper then presents some evidence on the sustainability of the internal and external deficits in the context of some developing countries. Finally the paper develops the theme of endogeneity of money supply to fiscal policy and international capital flows and points out the difficulties faced by stabilization policy under these conditions.

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File URL: http://www.wider.unu.edu/stc/repec/pdfs/dp2001/dp2001-71.pdf
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Paper provided by World Institute for Development Economic Research (UNU-WIDER) in its series Working Paper Series with number UNU-WIDER Research Paper DP2001/71.

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Length: 38 pages
Date of creation: 2001
Date of revision:
Handle: RePEc:unu:wpaper:dp2001-71
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  1. Schuknecht, Ludger, 1999. "Fiscal policy cycles and the exchange rate regime in developing countries," European Journal of Political Economy, Elsevier, vol. 15(3), pages 569-580, September.
  2. Bayoumi, Tamim & Masson, Paul R, 1998. "Liability-Creating versus Non-liability-Creating Fiscal Stabilisation Policies: Ricardian Equivalence, Fiscal Stabilisation, and EMU," Economic Journal, Royal Economic Society, vol. 108(449), pages 1026-45, July.
  3. Reisen, H, 1997. "Sustainable and Excessive Current Account Deficits," Research Paper 133, World Institute for Development Economics Research.
  4. Leonardo Leiderman & Guillermo A. Calvo & Carmen Reinhart, 1994. "Inflows of Capital to Developing Countries in the 1990s: Causes and Effects," Research Department Publications 4002, Inter-American Development Bank, Research Department.
  5. Nigel Andrew Chalk & Richard Hemming, 2000. "Assessing Fiscal Sustainability in Theory and Practice," IMF Working Papers 00/81, International Monetary Fund.
  6. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
  7. Merih Uctum & Michael Wickens, 1996. "Debt and deficit ceilings, and sustainability of fiscal policies: an intertemporal analysis," Research Paper 9615, Federal Reserve Bank of New York.
  8. Bharat Trehan & Carl E. Walsh, 1988. "Testing intertemporal budget constraints: theory and applications to U. S. federal budget and current account deficits," Working Papers in Applied Economic Theory 88-03, Federal Reserve Bank of San Francisco.
  9. William Easterly, 1999. "When is fiscal adjustment an illusion?," Economic Policy, CEPR;CES;MSH, vol. 14(28), pages 55-86, 04.
  10. Easterly, William & Schmidt-Hebbel, Klaus, 1993. "Fiscal Deficits and Macroeconomic Performance in Developing Countries," World Bank Research Observer, World Bank Group, vol. 8(2), pages 211-37, July.
  11. Jeffrey J. Frankel and Andrew K. Rose., 1996. "Currency Crashes in Emerging Markets: Empirical Indicators," Center for International and Development Economics Research (CIDER) Working Papers C96-062, University of California at Berkeley.
  12. David W. Wilcox, 1987. "The substainability of government deficits: implications of the present- value borrowing constraint," Working Paper Series / Economic Activity Section 77, Board of Governors of the Federal Reserve System (U.S.).
  13. Sargent, Thomas J., 1999. "A primer on monetary and fiscal policy," Journal of Banking & Finance, Elsevier, vol. 23(10), pages 1463-1482, October.
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