Big Government, High Debt, and Fiscal Adjustment in Small States

Author/Editor:

Rui Ota ; Stephanie Medina Cas

Publication Date:

February 1, 2008

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Using a new fiscal dataset for small states, this paper analyzes the link between country size, government size, debt, and economic performance. It finds that on average small states have larger governments and higher public debt. Although there are intrinsic factors that explain why governments are bigger in small states, those with smaller governments and lower public debt tend to grow faster and are less vulnerable. Large fiscal adjustments, primarily through expenditure restraint, can underpin growth, although sometimes other elements can also impact. Since better governance is associated with lower debt, fiscal adjustment should be supported by governance improvements.

Series:

Working Paper No. 2008/039

Subject:

Exchange rate arrangements Expenditure External debt Fiscal consolidation Public debt

Frequency:

Biannually

English

Publication Date:

February 1, 2008

ISBN/ISSN:

9781451869019/1018-5941

Stock No:

WPIEA2008039

Pages:

45

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