Challenges of Fiscal Policy in Emerging and Developing Economies

Ayhan Kose, Raju Huidrom (rhuidrom@imf.org) and Franziska Ohnsorge

No 11347, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper presents a systematic analysis of the availability and use of fiscal space in emerging and developing economies. These economies built fiscal space in the run-up to the Great Recession of 2008.09, which was then used for stimulus. This reflects a more general trend over the past three decades, where availability of fiscal space has been associated with increasingly countercyclical (or less procyclical) fiscal policy. However, fiscal space has shrunk since the Great Recession and has not returned to pre-crisis levels. Emerging and developing economies face downside risks to growth and prospects of rising financing costs. In the event that these cause a sharp cyclical slowdown, policymakers may need to employ fiscal policy as a possible tool for stimulus. An important prerequisite for fiscal policy to be effective is that these economies have the necessary fiscal space to employ countercyclical policies. Over the medium-term, credible and well-designed institutional arrangements, such as fiscal rules, stabilization funds, and medium-term expenditure frameworks, can help build fiscal space and strengthen policy outcomes.

Keywords: Fiscal space; Developing economies; Growth slowdown; Fiscal rules; Stabilization funds; Expenditure frameworks (search for similar items in EconPapers)
JEL-codes: E62 H50 H60 (search for similar items in EconPapers)
Date: 2016-06
New Economics Papers: this item is included in nep-mac and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Challenges of Fiscal Policy in Emerging and Developing Economies (2018)
Working Paper: Challenges of fiscal policy in emerging and developing economies (2016)
Working Paper: Challenges of Fiscal Policy in Emerging and Developing Economies (2016)
Working Paper: Challenges of fiscal policy in emerging and developing economies (2016)
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