Underlying Factors Driving Fiscal Effort in Emerging Market Economies

29 Pages Posted: 3 Mar 2006

See all articles by Abdul G. Abiad

Abdul G. Abiad

International Monetary Fund (IMF) - Research Department

Taimur Baig

International Monetary Fund (IMF)

Date Written: June 2005

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, fiscal balance, fiscal sustainability

JEL Classification: E62, H39, H63

Suggested Citation

Abiad, Abdul G. and Baig, Taimur, Underlying Factors Driving Fiscal Effort in Emerging Market Economies (June 2005). IMF Working Paper, Vol. , pp. 1-29, 2005. Available at SSRN: https://ssrn.com/abstract=887975

Abdul G. Abiad (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Taimur Baig

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
(202) 623-8790 (Phone)
(202) 244-4505 (Fax)

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