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Are Governments Wasting Your Tax Money?

The fiscal and debt problem in the region has been engendered in part by weak fiscal institutions and frameworks that have perpetuated chronic fiscal procyclicality. Without binding rules geared towards budgetary discipline, can Caribbean countries successfully overcome their fiscal and debt challenges?

In a recent working paper, issues surrounding the applicability, design and adoption of fiscal rules as a transformative shift towards promoting a new and improved fiscal-structural culture were explored. The study argued that Caribbean countries cannot adequately surmount their fiscal and debt challenges in the absence of an institutionalized and legitimate discretionary-constraining mechanism, such as fiscal rules.  The implementation of fiscal rules, which are idiosyncratic given varying contexts, but which are all are geared towards entrenching discipline, curbing pro-cyclicality, enforcing counter-cyclical policies, and improving budget transparency and credibility, are considered an urgent development priority.

Simulations carried out to assess consumer welfare and macroeconomic volatility under various fiscal rules-scenarios, found that of the different types of fiscal rules, simulated expenditure rules perform best in terms of reducing macroeconomic volatility. In that regard, it appears to be the most welfare enhancing.  The results suggest that achieving crucial economic goals depend on governments’ ability to design and manage binding rules to guide an effective fiscal framework.  This requires assessing the country’s major fiscal challenges and institutional frameworks through continuous monitoring preferably by an independent authority.  Improving fiscal governance and strengthening institutions are imperative to restore medium-term fiscal sustainability to better support socioeconomic development. The findings of the study evince useful insights for policymakers on how the design and conduct of fiscal policy might be improved for better fiscal, and by extension, development outcomes.

To learn more, download a copy of the working paper “Fiscal Rules: Towards a New Paradigm for Fiscal Sustainability in Small States” here: https://publications.iadb.org/handle/11319/8208

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2 Comments

  • haytiinthenews
    April 13, 2017 Reply

    […] IDB: Are Governments Wasting Your Tax Money? […]

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    sally radford
    April 17, 2017 Reply

    Trinidad and tobago is threatening a property tax which will further oppress rural landowners reeling from praedial larceny and violent crimes including murder and rape which overwhelm police and deter investment in small business. vat on food is another burden on daily life. energy companies struggle under onerous regulations including a ban on sale of their oil and gas to all except a state aggregator. blessed with a diverse populace, agricultural and mineral commodities, sunshine, scenery, mountains, plains, forests, rivers, beaches, talented citizens and educational facilities the archipelago can be a tropical paradise which works for everyone, producing most of its food, energy, water and household products. instead over $5 billion is spent on food imports and billions are squandered on imported fakes including plants which can be grown locally and plastic trash. a cultural narrative of power and wealth stimulates fear and leaders crave taxes from foreign investors to shape society in their own homogeneous image as daily homicides undermine efforts of the majority seeking peace and prosperity. who are in thrall to well-paid unions demanding control of the economy. the five fowls laying golden eggs- bp, shell, bhp, eog and the hsf -will succumb as resources decline. rulers rushed to borrow massive sums instead of mutualising bloated state assets to gain revenue from banks, oil and gas producers and other non-performing bureaucracies. a central bank governor was among many conscientious officials sacked for no good reason and blame is regularly laid on predecessors. rogue rhetoric and poor productivity continue to plague industry. the uwi south campus is delayed while security enjoys a budget of $10 billion and agriculture languishes with under $1 billion. statistics are out-of-date and unreliable. the port lacks modern infrastructure while entertainers receive massive grants for coarse culture.

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