Analyzing Fiscal Space Using the MAMS Model - An Application to Burkina Faso

IMF Working Papers, October 1, 2009

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This paper analyses economic implications and the transmission mechanisms of different options for creating and using fiscal space.
For creating fiscal space, the paper considers: prioritizing expenditures, raising revenue, and scaled-up aid.
Fiscal space is used for: increasing health and education spending, infrastructure spending, or both.
The analysis takes place within the World Bank's MAMS model, a multisectoral real computable general equilibrium model that incorporates the Millennium Development Goals.
The model has been calibrated for Burkina Faso, which serves as an illustrative country example.

Model: World Bank's MAMS model; described as a multisectoral real computable general equilibrium model that incorporates the Millennium Development Goals.
Calibration: Model calibrated for Burkina Faso (illustrative country example).
Analytical focus: transmission mechanisms of fiscal space creation and use, and implications for growth, labor absorption, education, and health outcomes.

Options for creating fiscal space:
- Prioritizing expenditures
- Raising revenue
- Scaled-up aid
Uses of fiscal space:
- Increasing health spending
- Increasing education spending
- Increasing infrastructure spending
- Combining health, education, and infrastructure spending

Absorbing a more educated labor force requires fundamental structural change in the economy.
Increasing health and education spending can face sizeable capacity constraints.
Infrastructure spending has a positive effect on growth as well as education and health outcomes.

Subject: Education, Expenditure, Fiscal space, Labor, Wages
Keywords: exchange rate, private sector, real GDP, reservation wage, wage rate, WP