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Making Fiscal Space Happen! Managing Fiscal Policy in a World of Scaled-Up Aid

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  • Heller, Peter S.
  • Katz, Menachem
  • Debrun, Xavier
  • Thomas, Theo
  • Koranchelian, Taline
  • Adenauer, Isabell

Abstract

Debt relief and the scaling up of aid to low-income countries should allow for greater fiscal space for expenditure programs to create long-term growth and lower poverty rates. But designing a suitable medium-term fiscal framework that fosters a sustainable delivery of better public services and infrastructure while maintaining a credible commitment to fiscal prudence confronts many challenges. This paper discusses what low-income countries can do to shape fiscal policy frameworks that are ambitious in trying to absorb additional aid while still ensuring longer-term sustainability for government expenditure programs and finances. It suggests what approaches can be used to manage the greater fiscal policy risks associated with a scaled-up aid environment, including coordination with monetary policy. The paper also discusses what institutional changes are needed if donors and countries are to facilitate the implementation of a higher level of aid-financed spending programs.
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Suggested Citation

  • Heller, Peter S. & Katz, Menachem & Debrun, Xavier & Thomas, Theo & Koranchelian, Taline & Adenauer, Isabell, 2006. "Making Fiscal Space Happen! Managing Fiscal Policy in a World of Scaled-Up Aid," WIDER Working Paper Series 125, World Institute for Development Economic Research (UNU-WIDER).
  • Handle: RePEc:unu:wpaper:rp2006-125
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    References listed on IDEAS

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    2. Ale Bulir & A. Javier Hamann, 2003. "Aid Volatility: An Empirical Assessment," IMF Staff Papers, Palgrave Macmillan, vol. 50(1), pages 1-4.
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    4. Bulír, Ales & Hamann, A. Javier, 2008. "Volatility of Development Aid: From the Frying Pan into the Fire?," World Development, Elsevier, vol. 36(10), pages 2048-2066, October.
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    6. Adam, Christopher S. & Bevan, David L., 2001. "Fiscal Policy Design in Low-Income Countries," WIDER Working Paper Series 067, World Institute for Development Economic Research (UNU-WIDER).
    7. Oya Celasun & Xavier Debrun & Jonathan D. Ostry, 2006. "Primary Surplus Behavior and Risks to Fiscal Sustainability in Emerging Market Countries: A "Fan-Chart" Approach," IMF Staff Papers, Palgrave Macmillan, vol. 53(3), pages 1-3.
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    11. Fielding, David & Mavrotas, George, 2005. "The Volatility of Aid," WIDER Working Paper Series DP2005/06, World Institute for Development Economic Research (UNU-WIDER).
    12. Antonio Fatás & Ilian Mihov, 2013. "Policy Volatility, Institutions, and Economic Growth," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 362-376, May.
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    Cited by:

    1. Anja Baum & Andrew Hodge & Aiko Mineshima & Marialuz Moreno Badia & Rene Tapsoba, 2017. "Can They Do It All? Fiscal Space in Low-Income Countries," IMF Working Papers 17/110, International Monetary Fund.
    2. Strand, Jon, 2009. ""Revenue management"effects related to financial flows generated by climate policy," Policy Research Working Paper Series 5053, The World Bank.
    3. Cecilia Briceño-Garmendia & Karlis Smits & Viven Foster, 2009. "Financing Public Infrastructure in Sub-Saharan Africa," World Bank Other Operational Studies 28238, The World Bank.
    4. Devarajan, Shantayanan & Go, Delfin S. & Page, John & Robinson, Sherman & Thierfelder, Karen, 2008. "Aid, growth, and real exchange rate dynamics," Policy Research Working Paper Series 4480, The World Bank.
    5. Gupta, Sanjeev, 2008. "Enhancing Effective Utilization of Aid in Fragile States," WIDER Working Paper Series 007, World Institute for Development Economic Research (UNU-WIDER).

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