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

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  • Le Houerou, Philippe
  • Sierra, Hector

Abstract

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.

Suggested Citation

  • Le Houerou, Philippe & Sierra, Hector, 1993. "Estimating quasi-fiscal deficits in a consistency framework : the case of Madagascar," Policy Research Working Paper Series 1105, The World Bank.
    • Handle: RePEc:wbk:wbrwps:1105
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    References listed on IDEAS

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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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    Cited by:

    1. Boray, Yavuz & Sierra, Hector, 1993. "Assessing Bank performance and the impact of financial restructuring in a macroeconomic framework : a new application," Policy Research Working Paper Series 1237, The World Bank.
    2. Beckerman,Paul E., 2000. "How small should an economy's fiscal deficit be? - a monetary programming approach," Policy Research Working Paper Series 2308, The World Bank.

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