Fiscal Adjustment Programs Research Articles

Evaluation of Structural Fiscal Transformation Reforms in Turkey: Reform Fatigue and Reform Ownership Problems

Distinctive features of the IMF supported fiscal adjustment programs is the implementation of structural fiscal reforms.Turkeycompleted many structural reforms aiming at an efficient market system and an effective public sector from 2000 to 2005. However due to the resistance against the reforms and changes experienced particularly in the second half of 2000 and 2002 and to the lack of “commitment” and “ownership” in the reforms the reforms were neither designed duly nor implemented completely.Turkeyshould commit and undertake structural reforms to be performed in public fiscal management. Such commitment necessitates a strategic management for the reforms in the medium term.

Ajuste fiscal nos estados: uma análise do período 1998-2006

O objetivo deste artigo é analisar a forma de enquadramento dos estados ao Programa de Ajuste Fiscal (PAF) e à Lei de Responsabilidade Fiscal (LRF), destacando seus impactos nas escolhas de alocação dos recursos públicos e na taxa de investimento. Os resultados obtidos após minucioso trabalho de depuração das bases de dados confirmam a melhoria da situação financeira de estados no período posterior à LRF, mas sugerem que existe um trade-off entre os indicadores fiscais, de um lado, e os investimentos e gastos em infraestrutura, de outro, exigindo uma reflexão sobre a qualidade e sustentabilidade do ajuste fiscal. Os dados orçamentários analisados também apontam evidências de contabilidade criativa.

Kingdom of the Netherlands-Aruba: 2010 Article IV Consultation Discussions-Staff Report; Informational Annex; Staff Statement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for the Kingdom of the Netherlands-Aruba

Aruba has an open economy with a history of stability-oriented macroeconomic policies. Adverse external shocks have led to a decline in tourism and disruption of oil refinery operations. Serious fiscal challenges need to be addressed and a fiscal adjustment program is needed to safeguard the sustainability of the public finances. Expenditure cuts and the central bank’s switch from a credit ceiling to an unremunerated reserves requirement as key policy tool is commended. The new monetary policy framework will likely increase the challenges to prudential regulation and supervision.

Monetary policy transmission in an undeveloped South Pacific Island country: a case study of Samoa

Amongst the South Pacific's least developed small island countries, Samoa has emerged as a successful economy. Its achievements of low inflation and high growth rates have been due to sustained fiscal adjustment programmes and appropriate monetary policy measures. This paper undertakes an empirical study of transmission mechanism of monetary policy by adopting a VAR approach and using quarterly data over a 17-year period (1990-2006). The study findings are that money and exchange rate channels are important channels in transmitting monetary impulses to Samoa's output.

Tax Administration Reform and Fiscal Adjustment: The Case of Indonesia(2001-07)

Tax administration reforms can play an important role in fiscal adjustment. This role is examined by reviewing Indonesia's tax reform cum fiscal adjustment experience since 2001. The paper describes Indonesia's fiscal adjustment strategy, its tax administration reforms, and assesses the impact of these reforms on fiscal adjustment. Evidence suggests tax administration improvements had a strong positive impact on the tax yield and a positive effect on the investment climate. Lessons are presented for designing tax administration reforms within the context of a fiscal adjustment program and reform priorities are identified for Indonesia's ongoing efforts to strengthen tax administration.

Tax Reform and Debt Sustainability in Germany: An Assessment Using the Global Fiscal Model

In 2005, the German government announced a far-reaching fiscal adjustment program. This paper uses the IMF’s Global Fiscal Model to study its impact and explores options for addressing long-term pressures from population aging. The growth effects of the planned VAT increase are likely modest, largely owing to the stimulating effect of other tax reductions. The reform will improve the long-term debt path but achieving fiscal sustainability requires further adjustment over the medium term. An additional package of expenditure restraint, entitlement reform, and tax-base broadening compares favorably to other adjustment options. Spillover effects to trading partners of these policies are modest.

Tax Reform and Debt Sustainability in Germany: An Assessment Using the Global Fiscal Model

In 2005, the German government announced a far-reaching fiscal adjustment program. This paper uses the IMF’s Global Fiscal Model to study its impact and explores options for addressing long-term pressures from population aging. The growth effects of the planned VAT increase are likely modest, largely owing to the stimulating effect of other tax reductions. The reform will improve the long-term debt path but achieving fiscal sustainability requires further adjustment over the medium term. An additional package of expenditure restraint, entitlement reform, and tax-base broadening compares favorably to other adjustment options. Spillover effects to trading partners of these policies are modest.

When is fiscal adjustment an illusion?

Fiscal adjustment is an illusion when it lowers the budget deficit or public debt but leaves government net worth unchanged. Conventional measures of the budget deficit largely show the change in public sector debt. Ideally, the measured deficit would reflect the change in Public sector net worth. Many people consider it impractical to try to measure public sector assets. My paper does not discuss what the deficit should measure, but instead proposes a positive and testable theory of how governments actually behave. When an outside agent forces a reduction in a government's conventional deficit and debt accumulation, the government responds by lowering asset accumulation or increasing hidden liabilities. Since government net worth is unchanged, such fiscal adjustment is an illusion. Using data from countries with World Bank and IMF fiscal adjustment programmes, and case studies of EMU countries' compliance with the Maastricht criteria, I confirm my theoretical predictions: fiscal adjustment in these countries was at least partly an illusion.

Economic Crisis: Brazil and IMF Reach Accord on Economic Reform Program Backed By $41 Billion in Loans

We welcome Brazil's announcement of a strong fiscal adjustment program to strengthen Brazil's public finances. It is essential that Brazil implement their program promptly and convincingly.

DISTRIBUTIONAL CONFLICT, FINANCIAL ADAPTATION AND DELAYED STABILIZATIONS

In this paper we model delayed stabilizations as the rational outcome of a distributional conflict between two risk averse groups in the presence of post‐stabilization payoff uncertainty and costly policy reversion. We show that in the initial stages of an extreme inflation episode there is a bias towards maintaining the current inefficient (but certain) revenue collection system which prevents the adoption of the required fiscal adjustment program. The access by those with higher income to a financial adaptation technology increases the average rate of inflation through time for any given government deficit, raising the welfare costs of not reaching an agreement and increasingly redistributing the burden of inflation to those with lower income. This process, if strong enough, will eventually trigger the necessary political support for the required fiscal adjustment. Delayed stabilizations will, nevertheless, induce the poor into accepting conditions that they did not find optimal before.

Government Arrears in Fiscal Adjustment Programs

Expenditure arrears, signifying prolonged delays in the government meeting its financial obligations to suppliers and creditors, have become an increasingly common feature of government operations in many developing countries. This paper indicates the significance of arrears in distorting typical measures of fiscal stance as well as their potential role in facilitating the delay of desired fiscal adjustment measures. Following a discussion of the issues involved in defining and measuring different types of arrears, an approach to incorporating arrears into the presentation of government accounts is described. After a brief discussion of the macroeconomic effects of government arrears, the paper concludes with a discussion of the treatment of arrears in programs of fiscal adjustment. A strategy of combining a program of arrears reduction with an appropriate monitoring system for broad aggregates of government expenditure is recommended, with the objective of preventing the emergence of further arrears.