Strengthening Fiscal Frameworks and Improving the Spending Mix in Small States

Ezequiel Cabezon, Patrizia Tumbarello and Yiqun Wu

No 2015/124, IMF Working Papers from International Monetary Fund

Abstract: Reflecting diseconomies of scale in providing public goods and services, recurrent spending in small states typically represents a large share of GDP. For some small states, this limits the fiscal space available for growth-promoting capital spending. Small states generally face greater revenue volatility than other country groups, owing to their exposure to exogenous shocks (including natural disasters) and narrow production bases. With limited buffers, revenue volatility often results in procyclical fiscal policy as the econometric analysis shows. To strengthen fiscal frameworks, small states should seek to streamline and prioritize recurrent spending to create fiscal space for capital spending. The quality of spending could also be improved through public financial management reform and multiyear budgeting.

Keywords: WP; small state; spending; revenue; revenue volatility; spending mix; small states; procyclical policies; quality of spending; budget-spending rigidity; expenditure rule; resilience to shock; opportunity cost; development spending; volatility in small states; revenue rule; vulnerability to shock; mix in small states; Capital spending; Fiscal governance; Fiscal space; Pacific Islands; Asia and Pacific (search for similar items in EconPapers)
Pages: 34
Date: 2015-06-19
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Citations: View citations in EconPapers (6)

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