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World Bank(2007)-Fiscal Policy for Growth and Development Further Analysis

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Fiscal policy for growth and development further analysis
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  D EVELOPMENT   C OMMITTEE   (Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund On the Transfer of Real Resources to Developing Countries)     I    N    T    E    R   N A   T   I  O  N A L   B  A N   K   F    O    R    WORLD BANK R     E      C      O     N    S    T    R   U    C   T   I   O  N   A  N  D  D   E    V    E    L   O     P    M      E     N       T   DC2007-0004 March 28, 2007 FISCAL POLICY FOR GROWTH AND DEVELOPMENT FURTHER ANALYSIS AND LESSONS FROM COUNTRY CASE STUDIES Attached for the April 15, 2007, Development Committee Meeting is a background report entitled “Fiscal Policy for Growth and Development Further Analysis and Lessons from Country Case Studies,” prepared by the staff of the World Bank. * * *   INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT AND THE INTERNATIONAL DEVELOPMENT ASSOCIATION FISCAL POLICY FOR GROWTH AND DEVELOPMENT   Further Analysis and Lessons from Country Case Studies March 22, 2007    ACRONYMS AAC Aid Access Countries AIDS Acquired Immune Deficiency Syndrome CEM Country Economic Memorandum DEC Development Economics, World Bank ESW Economic and Sector Work GBC Government Budget Constraint GDP Gross Domestic Product GFS Government Finance Statistics Hi-AAC Aid Access Countries with high aid inflows Hi-MAC Market Access Countries with a relatively high level of public expenditure HICs High Income Countries HIV Human Immunodeficiency Virus HIPC Heavily Indebted Poor Country IMF International Monetary Fund LICs Low Income Countries Low-AAC Aid Access Countries with low aid inflows Low-MAC Market Access Countries with a relatively low level of public expenditure MAC Market Access Countries MICs Middle Income Countries MTEF Medium Term Expenditure Framework MAMS Maquette for MDG Simulations MDGs Millennium Development Goals MDG-1 Target 1 of Millennium Development Goals MDRI Multilateral Debt Relief Initiative OECD Organization for Economic Cooperation and Development PEFA Public Expenditure and Financial Accountability PER Public Expenditure Review PFM Public Financial Management PPP Public Private Partnership PRSP Poverty Reduction Strategy T&C Transport and Communication VAT Value-Added Tax ACKNOWLEDGEMENTS This paper was prepared under the supervision of D. Leipziger (PREM VP), directed by S. Pradhan (Director, PRMPS) and task managed by A. Rajaram (Lead Economist, PRMPS). S. Shetty (Director, AFR PREM) and K. Krumm (Sector Manager, AFR PREM) provided guidance. Contributors from the PREM, HD and INF Networks and country teams: D. Benitez, Prof. D. Bevan (consultant), B. Bidani,, N. Biletska, M. Brownbridge (consultant), W. Butterfield (consultant), C. Briceno Garmendia,, J. L. Calix, S. Canagarajah, A. Estache, K. Ezemenari, V. Foster, K. Gassner, Prof. N. Gemmell (consultant), P. Gottret, D. Haazen, P. Kumar, T.M. Le, E. Ley, A. Manroth, D. L. Merotto, M. Mills, B. Moreno-Dodson, C. Obidegwu, B. Pinto, J. Rojchaichaninthorn, P. Saavedra, A. Seck, V. Songwe, L. Sondergaard, A. Soucat, P. Suriyaarachchi (consultant), Z. Swift, M. Thomas, M. Vagliasindi, A. Varoudakis, S. von Klaudy, M. Vujicic, P. Wade, E. Weisman and M. Wes.    Fiscal Policy for Growth and Development Further Analysis and Lessons from Country Case Studies  March 22, 2007 Contents Executive Summary........................................................................................i I Introduction........................................................................................1 II. The Debate over “Fiscal Space”........................................................3 III. Evidence on Public Spending and Growth........................................6 IV. A Growth-Oriented Approach to Fiscal Policy.................................7 V. Country Case Studies.......................................................................10 VI. Conclusions and Operational Implications......................................29 Boxes Box 1: Iteration between Goals and Resource Constraints...............9 Box 2: Modeling Public Expenditure and Growth.........................10 Box 3: Country Case Studies..........................................................14 Figures Figure 1: Growth-Oriented Fiscal Policy Schematic........................8 Figure 2: Expenditure, Revenue and Deficit Levels.......................11 Figure 3: Navigating in Fiscal Space..............................................13 Annex Material............................................................................................36 Table A1: Economic Growth and Fiscal Indicators 2003-05.........37 Table A2: Summary of Recent Results for Developed Countries..44 Table A3: Summary of Recent Results for Developing Countries.45 Annex 1: The Microeconomics of Expenditure Decisions.............38 Annex 2: Theory and Evidence on Public Expenditure and Growth 41 Annex 3: Public Expenditure in Six High Growth Countries.........47 Annex 4: Revenue Mobilization.....................................................50 References........................................................................................51
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