FISCAL POLICIES, THE FAKING OF FOREIGN TRADE DECLARATIONS, AND THE BALANCE OF PAYMENTS1

Abstract

Publisher Summary This chapter discusses fiscal policies, the faking of foreign trade declarations, and the balance of payments. The interaction between fiscal and monetary policies, including foreign and domestic taxation measures, and the balance of payments has been analyzed at several levels by trade theorists. The effects of changes in interest rates on the current and capital accounts are, for example, very much at the core of the classical analysis of balance of payments adjustment. So also the macro-analysis of fiscal policy, via budgetary surplus and deficit changes, has now been integrated into the recent absorption approach to balance of payments analysis. The phenomenon of faked trade declarations has, thus, nothing to do with whether there is exchange control or not. Where there is overinvoicing of exports or underinvoicing of imports, the transaction will create a net demand for illegal foreign exchange (in exchange control economies); where there is underinvoicing of exports or overinvoicing of imports, the transaction will create a net supply of illegal foreign exchange. However, individual balance of payments entries, such as, official remittances, will undoubtedly be affected and may, in turn, have economic implications in so far as they are treated by influential commentators such as aid-giving agencies as significant indicators of health in the balance of payments.