Working Paper: NBER ID: w2603
Authors: Willem H. Buiter
Abstract: The paper analyses the role of fiscal policy in the restoration of internal and external macroeconomic equilibrium and in achieving structural adjustment i.e. major changes in the patterns of sectoral and intertemporal resource allocation. The focus is on developing and new industrial countries in need of both stabilization and structural adjustment. The external transfer problem and the associated internal fiscal and real resource transfer problems are analyzed with special emphasis on possible causes for the breakdown of the internal and external transfer processes. The concepts of national and public sector solvency are used to evaluate the mutual consistency and feasibility of fiscal, financial and monetary plans. Special attention is devoted to the links between the fiscal deficit and inflation and to the inflation tax.
Keywords: Fiscal Policy; Macroeconomic Equilibrium; Structural Adjustment; Developing Countries
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| public sector financial deficits (H69) | external deficits (H62) |
| reducing public sector deficit (H69) | improve external current account (F32) |
| fiscal adjustments (E62) | external transfers (F24) |
| fiscal retrenchment (E62) | reduce national absorption relative to national income (H69) |
| reduce national absorption relative to national income (H69) | improve current account balance (F32) |
| fiscal tightening (E62) | decrease demand for non-traded goods (R22) |
| changes in fiscal policy (E62) | influence distribution of income and factor prices (E25) |