The Phasing of Fiscal Adjustments: What Works in Emerging Market Economies?

20 Pages Posted: 19 Oct 2006  

Emanuel Baldacci

National Institute of Statistics (Istat)

Benedict Clements

International Monetary Fund (IMF)

Sanjeev Gupta

International Monetary Fund (IMF) - Fiscal Affairs Department

Carlos Mulas-Granados

Government of the Kingdom of Spain - Economic Bureau of the President

Abstract

This paper investigates the political and economic determinants of successful fiscal adjustment in 25 emerging market economies from 1980 to 2001. The results show that large and back-loaded fiscal adjustments have the highest likelihood of success. Fiscal consolidations based on expenditure cuts increase the probability of approaching and achieving fiscal sustainability but are insufficient to maintain it unless accompanied by revenue reforms. Adjustment episodes launched in countries where governments enjoy a parliamentary majority and do not face imminent elections, are found to be more successful. Fiscal consolidations undertaken under IMF-supported programs also have a higher probability of success.

Suggested Citation

Baldacci, Emanuel and Clements, Benedict and Gupta, Sanjeev and Mulas-Granados, Carlos, The Phasing of Fiscal Adjustments: What Works in Emerging Market Economies?. Review of Development Economics, Vol. 10, No. 4, pp. 612-631, November 2006. Available at SSRN: https://ssrn.com/abstract=938594 or http://dx.doi.org/10.1111/j.1467-9361.2006.00336.x

Emanuel Baldacci

National Institute of Statistics (Istat) ( email )

Via Cesare Balbo 16
00184 Rome, 0185
Italy

Benedict Clements

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Sanjeev Gupta

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States

Carlos Mulas-Granados

Government of the Kingdom of Spain - Economic Bureau of the President ( email )

28071 Madrid
Spain

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