Fiscal deficit reduction programs in developing countries: Stabilization versus growth in the presence of credit rationing

This paper presents a model for analyzing potential conflicts between short-run output and employment effects and medium-run growth effects of various fiscal actions. In the model, both firms and households are intertemporal optimizers; short-run wage stickiness and interest rate controls generate macroeconomic disequilibrium. The analysis focuses on the consequences of various government expenditure or deficit reduction policies.

Analyzing the sustainability of fiscal deficitsin developing countries

The author surveys the recent literature on the sustainability of fiscal deficits, most of which focuses on the United States and other industrial countries, to see how useful it might be in developing countries. The accounting approach to analysis focuses on steady states and assumes that a fiscal deficit (or surplus) that leads to unchanging debt/GDP ratios over time is sustainable. The data required to apply this approach are relatively modest. The present-value constraint (PVC) approach assumes that the sustainability of fiscal policy depends ultimately on what level of fiscal deficit is financeable, which depends in turn on the behavior of lenders. Recent empirical implementations of this approach concentrate on methods for testing whether maintaining current fiscal policy (as captured by historical time series on government spending, revenue, and debt) violates the present-value-constraint or, equivalently, the no-Ponzi-game (NPG) condition. The econometric methods used in this literature (such as tests for the prsence of unit roots and cointegration) require long-time series over a constant fiscal regime, requirements that may be unrealistic in many countries. Typically, analyzing the sustainability of deficits in developing countries involves issues that are not particularly important in industrialized countries. Developing countries rely far more on seignorage to finance deficits, although the degree of that reliance varies greatly among countries; the simultaneous presence of both domestic and foreign-currency borrowing is central in a growing number of developing countries; and concessional lending and grants may also be an important part of fiscal finance. The author generalizes the PVC approach to economies that use money-financing of deficits, economies for which concessional financing is available, and economies that incur both domestic and foreign debt. He proposes a possible compromise in approaches: rather than use time series techniques to describe constant fiscal regimes, one can specify fiscal rules into the foreseeable future based on country-specific information about fiscal targets (perhaps as stated in IMF stabilization programs). Then one can calculate the implied time path for domestic and foreign debt, given current debt levels as initial conditions. Using this hypothesized time path for debt, one can ask whether it satisfies the no-Ponzi-game condition. If it does, fiscal policy is -by this definition- sustainable. If the NPG condition is violated, fiscal policy is unsustainable.Economic Theory&Research,Environmental Economics&Policies,Payment Systems&Infrastructure,Banks&Banking Reform,Strategic Debt Management,Economic Theory&Research,Economic Stabilization,Banks&Banking Reform,Strategic Debt Management,Environmental Economics&Policies

Prebisch-Singer Redux

In light of ongoing concern about commodity specialization in Latin America, this paper revisits the argument of Prebisch (1950) that, over the long term, declining terms of trade would frustrate the development goals of the region. This paper has two main objectives. The first is to clarify the issues raised by Prebisch and Singer (1950), as they relate the commodity specialization of developing countries (and Latin America in particular). The second is to reconsider empirically the issue of trends in commodity prices, using recent data and techniques. We show that rather than a downward trend, real primary prices over the last century have experienced one or more abrupt shifts, or “structural breaks,” downwards. The preponderance evidence points to a single break in 1921, with no trend, positive or negative, before or since.

Fiscal policy and the current account : what do capital controls do?

Se analiza en que medida la existencia de controles sobre los movimientos internacionales de capitales afecta el grado en que: (1) la reduccion del deficit publico, (2) el desplazamiento del gasto publico desde bienes importados hacia bienes nacionales, y (3) la sustitucion de la financiacion externa por la financiacion interna del deficit publico, mejoran la balanza de pagos por cuenta corriente. Las conclusiones obtenidas sugieren que, en paises con "restricciones" sobre los movimientos internacionales de capitales privados,la mejora de la balanza corriente se logra basicamente mediante reducciones del grado de "financiacion" publica en el "exterior". Por otra parte, en aquellos paises que gozan de libertad de movimiento internacional de capitales privados la mejora se logra a traves de reducciones del gasto publico en bienes importados

Budget deficits and the current account in the presence of classical unemployment

Se examinan los efectos de la politica fiscal en el equilibrio interno y externo de la economia, a partir de un modelo intertemporal de una economia abierta con tipo de cambio flexible, caracterizada por desempleo clasico en el corto plazo

Budget deficits and the current account: an intertemporal disequilibriun approach

Se trata de explicar los efectos del deficit publico en la balanza de pagos por cuenta corriente, el tipo de cambio real y el nivel de renta. Para ello, se construye un modelo intertemporal de desequilibrio de una economia monetaria abierta con tipo de cambio flexible

BONANZAS DE PRODUCTOS BASICOS, ESTABILIZACION MACROECONOMICA Y REFORMA COMERCIAL EN COLOMBIA

La tesis que se expone en el presente documento aduce que un estrategia macroeconómica encaminada a hacer frente a las bonanzas de productos básicos de exportación es requisito indispensable para consolidar la liberación del comercio dentro del marco de la economía colombiana.

TENDENCIAS Y CICLOS DEL PIB REAL Y EL DEFICIT FISCAL DE COLOMBIA

El propósito de este documento es doble. El primero es metodológico. Se presenta el método de Beveridge y Nelsol de descomposición de series de tiempo y se ilustra su uso examinando los movimientos del PIB real en Colombia. Se analizan los ingresos y gastos del gobierno, para analizar si el pronunciado aumento del déficil fiscal a comienzos de los ochenta debe ser visto como un fenómeno ´cíclico o secular.DEFICIT FISCAL,

Economic Returns to Investment in AIDS Treatment in Low and Middle Income Countries

Since the early 2000s, aid organizations and developing country governments have invested heavily in AIDS treatment. By 2010, more than five million people began receiving antiretroviral therapy (ART) – yet each year, 2.7 million people are becoming newly infected and another two million are dying without ever having received treatment. As the need for treatment grows without commensurate increase in the amount of available resources, it is critical to assess the health and economic gains being realized from increasingly large investments in ART. This study estimates total program costs and compares them with selected economic benefits of ART, for the current cohort of patients whose treatment is cofinanced by the Global Fund to Fight AIDS, Tuberculosis and Malaria. At end 2011, 3.5 million patients in low and middle income countries will be receiving ART through treatment programs cofinanced by the Global Fund. Using 2009 ART prices and program costs, we estimate that the discounted resource needs required for maintaining this cohort are $14.2 billion for the period 2011–2020. This investment is expected to save 18.5 million life-years and return$12 to $34 billion through increased labor productivity, averted orphan care, and deferred medical treatment for opportunistic infections and end-of-life care. Under alternative assumptions regarding the labor productivity effects of HIV infection, AIDS disease, and ART, the monetary benefits range from 81 percent to 287 percent of program costs over the same period. These results suggest that, in addition to the large health gains generated, the economic benefits of treatment will substantially offset, and likely exceed, program costs within 10 years of investment