Underlying Factors Driving Fiscal Effort in Emerging Market Economies

Abdul Abiad and Taimur Baig

No 05/106, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: Public debt; Emerging markets; Fiscal policy; Economic models (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin and nep-mac
Date: 2005-06-10
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