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Underlying Factors Driving Fiscal Effort in Emerging Market Economies

Author/Editor: Abiad, Abdul | Baig, Taimur
Authorized for Distribution: June 1, 2005
Electronic Access: Free Full Text (PDF file size is 673KB)
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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: Using a panel dataset of 34 emerging market countries for the period 1990-2002, we examine the roles of various economic, political, and institutional variables in determining fiscal effort, as proxied by the primary surplus. We find that while fiscal effort increases, as expected, with the level of lagged debt, this effect tapers off beyond a certain threshold. We also find an inverse U-shaped relationship between the primary balance and revenue. Fiscal effort rises with positive shocks to oil prices (for oil exporters), when the economy grows above its potential, and in the presence of an IMF-supported program. In contrast, high democratic accountability and strong and impartial bureaucracies help lower market risk and hence lower the relative need for fiscal adjustment. Finally, fiscal effort tends to decline when too many constraints are faced by the executive.
 
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Series: Working Paper No. 05/106
Subject(s): Public debt | Emerging markets | Fiscal policy | Economic models
Author's keyword(s): Public debt | fiscal balance | fiscal sustainability
 
English  
    Published:   June 1, 2005        
    ISBN/ISSN:   1934-7073   Format:   Paper
    Stock No:   WPIEA2005106   Pages:   28
    Price:   US$15.00 (Academic Rate: US$15.00 )
       
     
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