Mario I. Blejer and Teresa Ter-Minassian
Fiscal policies, broadly defined to include tax, government expenditures, and deficit financing policies, have multiple goals and functions, including the fulfillment of micro- as well as macroeconomic objectives. While over time the emphasis, both of academics and policy makers, has shifted between these two aspects of public finance, there is no doubt that the analysis of the linkages between fiscal and other macroeconomic policies is today at the center stage of modern macroeconomic analysis. Indeed, at the core of such analysis are questions related to the interactions between the budgetary stance and the behavior of economic aggregates such as employment, inflation, savings, investments, and growth, as well as the implications of these linkages for the proper design of fiscal policies.
This volume contains a set of papers that analyse in detail some of the most crucial aspects of these interactions. While the common denominator of all the papers is their preoccupation with the macroeconomic effects of fiscal and budgetary actions, the various studies emphasize different aspects of these effects. The book is therefore divided into six sections, each including the papers that deal with selected aspects of the general theme. The first substantive section of the book (Part I) sets the stage for the overall analysis by discussing the bounds of government policies and analysing the broad interactions between the micro and macro aspects of fiscal policies. Part II considers fiscal aspects of a decentralized federal system, while Part III deals with the macroeconomic effects of fiscal policies in an open economy, including a discussion of international taxation, commercial policies, foreign public debt management, and the impact of the budget on exchange rate determination. Part III considers macroeconomic aspects of expenditure policies, and Part IV discusses the consequences of alternative deficit financing strategies. Part V contains four country studies that provide empirical evidence on the effects of specific fiscal strategies within the process of macroeconomic stabilization.
The opening chapter by Richard Musgrave notes that the role of fiscal