Fiscal Policy and Financial Development

Author/Editor:

David Hauner

Publication Date:

January 1, 2006

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:

We examine the effects of public sector borrowing from the domestic banking system on financial development in middle-income countries. While these countries' external debt has been falling, the share of bank credit absorbed by the public sector has been rising rapidly. We argue that this runs the risk of slowing financial development by affecting structural characteristics of the banking systems. We find empirical evidence that too much public sector borrowing harms financial deepening, and that banks mainly lending to the public sector tend to be more profitable but less efficient. We note that these effects add to the costs of fiscal prolificacy.

Series:

Working Paper No. 06/26

Subject:

English

Publication Date:

January 1, 2006

ISBN/ISSN:

9781451862867/1018-5941

Stock No:

WPIEA2006026

Price:

$15.00 (Academic Rate:$15.00)

Format:

Paper

Pages:

26

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