Big Government, High Debt, and Fiscal Adjustment in Small States

February 1, 2008

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Format: Chicago

Rui Ota, and Stephanie Medina Cas. Big Government, High Debt, and Fiscal Adjustment in Small States, (USA: International Monetary Fund, 2008) accessed December 26, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Using a new fiscal dataset for small states, this paper analyzes the link between country size, government size, debt, and economic performance. It finds that on average small states have larger governments and higher public debt. Although there are intrinsic factors that explain why governments are bigger in small states, those with smaller governments and lower public debt tend to grow faster and are less vulnerable. Large fiscal adjustments, primarily through expenditure restraint, can underpin growth, although sometimes other elements can also impact. Since better governance is associated with lower debt, fiscal adjustment should be supported by governance improvements.

Subject: Exchange rate arrangements, Expenditure, External debt, Fiscal consolidation, Public debt

Keywords: Country, Government, Government effectiveness, Small country, Small states, WP

Publication Details

Pages:

45
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2008/039
Stock No:

WPIEA2008039
ISBN:

9781451869019
ISSN:

1018-5941

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