Strengthening Fiscal Frameworks and Improving the Spending Mix in Small States

By Ezequiel Cabezon, Patrizia Tumbarello, Yiqun Wu

June 19, 2015

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Ezequiel Cabezon, Patrizia Tumbarello, and Yiqun Wu. Strengthening Fiscal Frameworks and Improving the Spending Mix in Small States, (USA: International Monetary Fund, 2015) 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

Reflecting diseconomies of scale in providing public goods and services, recurrent spending in small states typically represents a large share of GDP. For some small states, this limits the fiscal space available for growth-promoting capital spending. Small states generally face greater revenue volatility than other country groups, owing to their exposure to exogenous shocks (including natural disasters) and narrow production bases. With limited buffers, revenue volatility often results in procyclical fiscal policy as the econometric analysis shows. To strengthen fiscal frameworks, small states should seek to streamline and prioritize recurrent spending to create fiscal space for capital spending. The quality of spending could also be improved through public financial management reform and multiyear budgeting.

Subject: Capital spending, Expenditure, Fiscal governance, Fiscal policy, Fiscal space

Keywords: Asia and Pacific, Budget-spending rigidity, Capital spending, Development spending, Expenditure rule, Fiscal governance, Fiscal space, Mix in small states, Opportunity cost, Pacific Islands, Procyclical policies, Quality of spending, Resilience to shock, Revenue, Revenue rule, Revenue volatility, Small state, Small states, Spending, Spending mix, Volatility in small states, Vulnerability to shock, WP

Publication Details

Pages:

34
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/124
Stock No:

WPIEA2015124
ISBN:

9781513529103
ISSN:

1018-5941

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