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Analysing the Sustainability of Fiscal Deficits in Developing Countries

  • John T. Cuddington

    (Georgetown University)

This paper surveys the recent literature analysing fiscal deficit sustainability, most of which focuses on the U.S. and other industrial countries, in an attempt to assess its potential usefulness in the developing country context. Both the accounting approach and the present value constraint (PVC) approach are considered. Typically, sustainability analyses for developing countries involve issues that are not particularly important in the industrial country context. Reliance on seigniorage to finance deficits is often quantitatively much more important, although its use varies widely across LDCs. The distinction between domestic and foreign-currency borrowing is central; concessional lending and grants may also make an important contribution to fiscal finance. We consider generalizations of the PVC approach to situations where money-financing of deficits is used and concessional financing is available. The simultaneous presence of domestic and foreign debt, which characterizes a growing number of LDCs, are also discussed.

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Paper provided by EconWPA in its series International Finance with number 9706001.

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Length: 46 pages
Date of creation: 04 Jun 1997
Date of revision:
Handle: RePEc:wpa:wuwpif:9706001
Note: Type of Document - WordPerfect; prepared on IBM PC ; to print on HP Laserjet; pages: 46 ; figures: included. written with the assistance of Shihua Lu, PhD candidate at Georgetown.
Contact details of provider: Web page: http://econwpa.repec.org

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