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Fiscal Policy in Developing Countries : A Framework and Some Questions / Perotti, Roberto
World Bank Open Knowledge Repository (formerly "World Bank E-Library Publications") Available online
View online- Format:
- Book
- Government document
- Author/Creator:
- Perotti, Roberto
- Series:
- Policy research working papers.
- World Bank e-Library.
- Language:
- English
- Subjects (All):
- Debt Markets.
- Economic Stabilization.
- Economic Theory and Research.
- Finance and Financial Sector Development.
- Fiscal Adjustment.
- Fiscal policies.
- Fiscal Policy.
- Fiscal rules.
- Government budget.
- Government consumption.
- Government spending.
- Macroeconomics and Economic Growth.
- Monetary authorities.
- Public sector.
- Public Sector Expenditure Analysis and Management.
- Social security.
- Stabilization policies.
- Local Subjects:
- Debt Markets.
- Economic Stabilization.
- Economic Theory and Research.
- Finance and Financial Sector Development.
- Fiscal Adjustment.
- Fiscal policies.
- Fiscal Policy.
- Fiscal rules.
- Government budget.
- Government consumption.
- Government spending.
- Macroeconomics and Economic Growth.
- Monetary authorities.
- Public sector.
- Public Sector Expenditure Analysis and Management.
- Social security.
- Stabilization policies.
- Physical Description:
- 1 online resource (46 pages)
- Place of Publication:
- Washington, D.C., The World Bank, 2007
- System Details:
- data file
- Summary:
- This paper surveys fiscal policy in developing countries from the point of view of long-run growth. The first section reviews existing methodologies to estimate the effects of fiscal policy shocks and of systematic fiscal policy, with time series or with cross-sectional methods, and their applicability to developing countries. The second section surveys optimal fiscal policy in developing countries, by considering the role of the intertemporal government budget, and sustainability and solvency. It also reviews the fuzzy debate on "fiscal space" and "macroeconomic space" - and the usefulness (or lack thereof) of these terms for policy analysis. The third section asks what theory tells us about the optimal cyclical behavior of fiscal policy in developing countries. It shows that it very much depends on the assumptions about the interactions between credit market imperfections at the individual, firms, or government level, and on the supply of external funds to the country. Different sets of assumptions lead to different implications about optimal cyclical behavior. The available evidence on the cyclical behavior of fiscal policy, and possible reasons for the observed prevalence of a procyclical behavior in developing countries, is also reviewed. If one agrees that fiscal policy is indeed less countercyclical than we think is optimal, the issue is how to correct the problem. One obvious question is why government do not self-insure, id est why they do not accumulate assets in upturns and decumulate them in downturns. This leads to the analysis of fiscal rules and stabilization funds, in the fourth section. The last section concludes with what the author considers important research and policy questions in each part.
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