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

By Naoko C. Kojo, Arye L. Hillman, Emanuele Baldacci

December 1, 2003

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Format: Chicago

Naoko C. Kojo, Arye L. Hillman, and Emanuele Baldacci. Growth, Governance, and Fiscal Policy Transmission Channels in Low-Income Countries, (USA: International Monetary Fund, 2003) accessed September 18, 2024

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.

Subject: Expenditure, Fiscal policy, Government debt management, Government debt planning, Private investment

Keywords: Deficit, Exchange rate, Low-deficit dummy, WP

Publication Details

Pages:

39
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2003/237
Stock No:

WPIEA2372003
ISBN:

9781451875737
ISSN:

1018-5941

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