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Title: |
Fiscal Policy and the Current Account: What Do
Capital Controls Do? |
| Author: |
Vinals, Jose
M.; Cuddington, John T. |
| Author
Affiliation: |
Bank Spain;
Georgetown U |
| Source: |
International Economic Journal, Spring 1988, v. 2, no. 1, pp. 29-37 |
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Publication Date: |
Spring 1988 |
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Abstract: |
The formulation of fiscal policy targets
to restore external balance is becoming increasingly important as a
condition in World Bank loans, not to mention IMF standby arrangements.
Differing amounts of emphasis have been placed on the composition of
government spending and the method of deficit finance in particular
country situations. The paper suggests that in countries with
unrestricted capital inflows and outflows, conditionality should focus
on reducing the import component of government expenditure, rather than
the amount of public sector borrowing abroad. In countries with capital
controls on private external borrowing, on the other hand, fiscal
targets should limit the amount of public sector borrowing, rather than
attempting to shift the composition of government spending. This simple
rule should help those involved in establishing a relatively small
number of fiscal policy guidelines. |
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