Big Government, High Debt, and Fiscal Adjustment in Small States

Rui Ota and Stephanie Medina Cas

No 2008/039, IMF Working Papers from International Monetary Fund

Abstract: Using a new fiscal dataset for small states, this paper analyzes the link between country size, government size, debt, and economic performance. It finds that on average small states have larger governments and higher public debt. Although there are intrinsic factors that explain why governments are bigger in small states, those with smaller governments and lower public debt tend to grow faster and are less vulnerable. Large fiscal adjustments, primarily through expenditure restraint, can underpin growth, although sometimes other elements can also impact. Since better governance is associated with lower debt, fiscal adjustment should be supported by governance improvements.

Keywords: WP; government; small states; small country; country; government effectiveness (search for similar items in EconPapers)
Pages: 45
Date: 2008-02-01
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Citations: View citations in EconPapers (5)

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