Fiscal Policy Management in an Open Capital Regime

Author/Editor:

Peter S. Heller

Publication Date:

February 1, 1997

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:

This paper argues that as countries open their capital regimes, the appropriate fiscal stance should become more conservative than when capital is immobile. Further fiscal adjustment may be necessary in the face of large and volatile capital flows. However, the required changes would be smaller. If a fiscal response is unavoidable, some elements of fiscal policy are easier to manipulate and less distortive than others. Determining the actual stance of fiscal policy is more difficult in an open capital regime, underscoring the need for transparency about fiscal rules. A more open capital environment also constrains the sustainable fiscal structure.

Series:

Working Paper No. 1997/020

Subject:

Balance of payments Capital flows Capital inflows Expenditure Fiscal policy Fiscal stance

English

Publication Date:

February 1, 1997

ISBN/ISSN:

9781451922158/1018-5941

Stock No:

WPIEA0201997

Pages:

35

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