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This paper examines the design of economic policies using factor analysis, which has several advantages; in particular, it limits the problems that typically arise from the high correlation of economic policy indicators, it helps in identifying clusters of economic policy, and it facilitates the derivation of policy design indicators that represent the pace and sequence of economic policies. Econometric results show that the introduction of sound economic policies has both level effects and growth effects, suggesting it is necessary to exercise caution when assessing a country's growth prospects immediately following the introduction of new policies. In addition, the results suggest that growth strengthens when a country implements policies that outpace either a notional measure of "world average policies" or a country's own policy trend, and highlight the critical role played by macroeconomic vis-à-vis microeconomic policies. The latter also reveals the existence of sequencing factors in policy implementation; for example, trade liberalization and financial liberalization positively affect growth, but more so if economic stability and fiscal sustainability have been secured.

Econometrics --- Macroeconomics --- Classification Methods --- Cluster Analysis --- Principal Components --- Factor Models --- Fiscal Policy --- Comparative or Joint Analysis of Fiscal and Monetary Policy --- Stabilization --- Treasury Policy --- Institutions and the Macroeconomy --- Econometrics & economic statistics --- Factor models --- Fiscal stabilization --- Fiscal sustainability --- Structural reforms --- Fiscal stance --- Fiscal policy --- Econometric models --- Zimbabwe

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Countries have adopted various institutional responses to subnational government borrowing. Using a sample of 44 countries 1982-2000, this paper provides a panel data analysis to determine the most effective borrowing constraints for containing local fiscal deficits. The results suggest that no single institutional arrangement is superior under all circumstances. The appropriateness of specific arrangements depends upon other institutional characteristics, particularly the degree of vertical fiscal imbalance, the existence of any bailout precedent, and the quality of fiscal reporting.

Budget deficits. --- Debts, Public. --- Electronic books. -- local. --- Intergovernmental fiscal relations. --- Subnational governments. --- Budgeting --- Macroeconomics --- Public Finance --- Fiscal Policy --- Comparative or Joint Analysis of Fiscal and Monetary Policy --- Stabilization --- Treasury Policy --- National Government Expenditures and Related Policies: General --- National Budget --- Budget Systems --- Public finance & taxation --- Budgeting & financial management --- Fiscal stance --- Fiscal stabilization --- Expenditure --- Fiscal policy --- Budget planning and preparation --- Expenditures, Public --- Budget --- United States

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Transition literature has emphasized stabilization and enterprise restructuring. Both cross-country analyses and country-specific studies have tended to focus on fiscal stabilization and its indicators, highlighting the importance of quantitative fiscal adjustment to stabilization outcomes. Less attention has been paid to the qualitative dimensions of fiscal adjustment in transition. Alam and Sundberg take stock of the extent to which fiscal adjustment has occurred during the first decade of transition in both qualitative and quantitative dimensions. They define quality as the extent to which: (1) pro-growth expenditure essential for creating future economic and social assets are maintained; (2) pro-poor expenditure, such as poverty-targeted transfers, necessary to ensure income for the poor and vulnerable are adequately provided; and (3) fiscal risks, impinging on both expenditure and revenue, are managed through transition. The authors conclude that while the quantitative magnitude of the fiscal adjustment was dramatic, the quality of this adjustment has compromised the social and economic objectives of transition, particularly in the Commonwealth of Independent States (CIS). They draw four main conclusions: Investments in public services fell in both absolute and relative terms; Reduced spending on government transfers contributed to a sharp increase in income inequality in the CIS; Fiscal risks increased during the transition; Initial conditions allowed Central European and Baltic countries to maintain higher expenditures, which may have contributed to their faster economic recovery and political support for the reforms. The authors argue that the challenge today for fiscal policy in these countries is to facilitate the transition-particularly in reallocating resources from large state-owned enterprises to new small and medium-size firms, and providing priority public services and targeted transfers to assist those adversely affected by transition and reverse the deterioration in social outcomes. The interplay between fiscal policies and institutional arrangements is increasingly important as transition economies embark on their second decade of reforms. In particular, incentives embedded in the institutional arrangements for fiscal management needs to be strengthened so that policies, resources, and outcomes can be better aligned, and the fiscal adjustment is consistent with qualitative considerations. This paper-a product of the Poverty Reduction and Economic Management Sector Unit, Europe and Central Asia Region-is part of a larger effort in the region to understand economic transition in former centrally planned economies. The authors may be contacted at aalam@worldbank.org or msundberg@worldbank.org.

Banks and Banking Reform --- Debt Markets --- Economic Recovery --- Expenditures --- Finance and Financial Sector Development --- Financial Literacy --- Fiscal Adjustment --- Fiscal Imbalances --- Fiscal Management --- Fiscal Policies --- Fiscal Policy --- Fiscal Risks --- Fiscal Stabilization --- Fiscal Transition --- Incentives --- Macroeconomic Stabilization --- Outcomes --- Public Enterprises --- Public Sector Economics and Finance --- Public Sector Expenditure Analysis and Management --- Public Services --- Revenues --- Social Outcomes --- Structural Reform --- Tax Systems --- Transition Economies

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European Economic and Monetary Union does not envisage creating a central fiscal authority. Monetary and exchange rate policies will be centralized, but fiscal policy will remain a national responsibility, in line with the subsidiarity principle. This paper argues that monetary union will generate pressures for closer economic integration than currently envisaged. Although not a necessity, a more active central role could then be justified on the grounds of allocative efficiency, redistribution, and stabilization. While in the short term enhanced policy coordination may address those pressures satisfactorily, as economic integration proceeds, the case for a central fiscal authority may become stronger.

Budgeting --- Macroeconomics --- Public Finance --- International Fiscal Issues --- International Public Goods --- Policy Objectives --- Policy Designs and Consistency --- Policy Coordination --- Fiscal Policy --- National Government Expenditures and Related Policies: General --- Comparative or Joint Analysis of Fiscal and Monetary Policy --- Stabilization --- Treasury Policy --- National Budget --- Budget Systems --- Public finance & taxation --- Budgeting & financial management --- Fiscal policy --- Expenditure --- Fiscal stabilization --- Fiscal governance --- Budget planning and preparation --- Public financial management (PFM) --- Expenditures, Public --- Budget --- United States

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This paper contributes to the existing empirical literature on the principal determinants of tax revenue performance across developing countries by using a broad dataset and accounting for some econometric issues that were previously ignored. The results confirm that structural factors such as per capita GDP, agriculture share in GDP, trade openness and foreign aid significantly affect revenue performance of an economy. Other factors include corruption, political stability, share of direct and indirect taxes etc. The paper also makes use of a revenue performance index, and finds that while several Sub Saharan African countries are performing well above their potential, some Latin American economies fall short of their revenue potential.

Exports and Imports --- Macroeconomics --- Public Finance --- Taxation --- Agribusiness --- Taxation, Subsidies, and Revenue: General --- Comparative or Joint Analysis of Fiscal and Monetary Policy --- Stabilization --- Treasury Policy --- Agriculture: General --- Foreign Aid --- Business Taxes and Subsidies --- Public finance & taxation --- Agricultural economics --- International economics --- Revenue administration --- Fiscal stabilization --- Agricultural sector --- Foreign aid --- Consumption taxes --- Revenue --- Fiscal policy --- Agricultural industries --- International relief --- Spendings tax --- United Arab Emirates --- Developing countries --- Economic conditions.