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Estimating quasi-fiscal deficits in a consistency framework : the case of Madagascar

  • Le Houerou, Philippe
  • Sierra, Hector
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    In practice, conventional measures of the fiscal deficit exclude the activities of public financial institutions. As a result, fiscal policies may be applied inappropriately when these institutions - especially the central bank - run large losses (the quasi-fiscal deficit). The macroeconomic effects of the quasi-fiscal deficit are similar to the effects of the deficit from other public entities - and should therefore be included in the public deficit. Conceptual and practical difficulties have so far precluded a definition of quasi-fiscal deficits that is operationally useful and comparable across countries. After studying the methodological and practical problems of treating quasi-fiscal deficits, the authors propose using a flow-of-funds format, which in principle could be standardized across countries. Using Madagascar as an example, they show that the public sector deficit is significantly undervalued if quasi-fiscal deficits are not considered. They contend that such deficits must be taken into account in assessing the success of adjustment problems and development strategies supported by the IMF and the World Bank.

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    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1105.

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    Date of creation: 28 Feb 1993
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    Handle: RePEc:wbk:wbrwps:1105
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    1. Easterly, William & Schmidt-Hebbel, Klaus, 1991. "The macroeconomics of public sector deficits : a synthesis," Policy Research Working Paper Series 775, The World Bank.
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