Strengthening Fiscal Frameworks and Improving the Spending Mix in Small States
June 19, 2015
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Summary
Reflecting diseconomies of scale in providing public goods and services, recurrent spending in small states typically represents a large share of GDP. For some small states, this limits the fiscal space available for growth-promoting capital spending. Small states generally face greater revenue volatility than other country groups, owing to their exposure to exogenous shocks (including natural disasters) and narrow production bases. With limited buffers, revenue volatility often results in procyclical fiscal policy as the econometric analysis shows. To strengthen fiscal frameworks, small states should seek to streamline and prioritize recurrent spending to create fiscal space for capital spending. The quality of spending could also be improved through public financial management reform and multiyear budgeting.
Subject: Capital spending, Expenditure, Fiscal governance, Fiscal policy, Fiscal space
Keywords: Asia and Pacific, budget-spending rigidity, Capital spending, development spending, expenditure rule, Fiscal governance, Fiscal space, mix in small states, opportunity cost, Pacific Islands, procyclical policies, quality of spending, resilience to shock, revenue, revenue rule, revenue volatility, small state, small states, spending, spending mix, volatility in small states, vulnerability to shock, WP
Pages:
34
Volume:
2015
DOI:
Issue:
124
Series:
Working Paper No. 2015/124
Stock No:
WPIEA2015124
ISBN:
9781513529103
ISSN:
1018-5941
