Fiscal Policy Management in an Open Capital Regime

Peter Heller

No 1997/020, IMF Working Papers from International Monetary Fund

Abstract: This paper argues that as countries open their capital regimes, the appropriate fiscal stance should become more conservative than when capital is immobile. Further fiscal adjustment may be necessary in the face of large and volatile capital flows. However, the required changes would be smaller. If a fiscal response is unavoidable, some elements of fiscal policy are easier to manipulate and less distortive than others. Determining the actual stance of fiscal policy is more difficult in an open capital regime, underscoring the need for transparency about fiscal rules. A more open capital environment also constrains the sustainable fiscal structure.

Keywords: WP; capital flow; fiscal policy maker; fiscal policy instrument; fiscal policy stance; core expenditure area; fiscal policy management; fiscal policy response; Fiscal policy; globalization; capital flows; core expenditure function; fiscal policy--tax; expenditure structure; capital regime; core outlay; interest outlay; expenditure policy; Fiscal stance; Capital inflows; Southeast Asia; expenditure responsibility (search for similar items in EconPapers)
Pages: 35
Date: 1997-02-01
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Citations: View citations in EconPapers (8)

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