Growth, Governance, and Fiscal Policy Transmission Channels in Low-Income Countries

Author/Editor:

Naoko C. Kojo ; Arye L. Hillman ; Emanuele Baldacci

Publication Date:

December 1, 2003

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:

Private investment is the principal transmission channel through which fiscal policy affects growth in high-income countries. In low-income countries, governance and also other considerations suggest that the primary channel is factor productivity. Empirical results reported in this paper confirm this expectation: in low-income countries, factor productivity is some four times more effective than investment as a channel for increasing growth through fiscal policy. Although the private investment response to fiscal contraction may be minor, high-deficit, low-income countries can nonetheless benefit from a reduction in unsustainable fiscal deficits because of governance-related factor productivity responses that increase growth.

Series:

Working Paper No. 2003/237

Subject:

Expenditure Fiscal policy Government debt management Government debt planning Private investment

English

Publication Date:

December 1, 2003

ISBN/ISSN:

9781451875737/1018-5941

Stock No:

WPIEA2372003

Pages:

39

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