The paper examines the macroeconomic effects of public investment in emerging market and developing economies (EMDEs). To this end the analysis develops a new measure of public investment shocks based on cyclically adjusted government investment. Estimations using local projections based on a sample of 129 countries over the period 1980-2019 suggest that public investment can significantly boost economic growth, crowd in private investment, and increase productivity and potential output. Estimates suggest that an increase in public investment by 1% of GDP raises real output by 1.1% after 5 years, on average. However, the effects are much larger when public investment spending is efficient and fiscal space is ample-reaching up to 1.6% over the same period. Public investment multipliers tend to be larger during recessions and in capital scarce economies.

We explore the impact of major terrorism shocks on macroeconomic and fiscal variables´ dynamics using an unbalanced panel of 191 heterogeneous countries from 1970 to 2018. By means of the local projection method, we find that a terrorist shock lowers a country’s real GDP as well as government tax revenues and raises debt-to-GDP ratio. The composition of government spending shifts in favor of military spending. Low-income countries are affected more than both emerging market and advanced economies. Our results are robust to a battery of sensitivity and robustness tests.

Using discrete choice models, this paper examines the macroeconomic and political factors motivating more than 450 fiscal consolidation episodes in 185 countries during the period 1979–2019. In emerging and developing countries, consolidations are more likely during “good times”: when growth is high, and countries experience positive terms of trade shocks with low inflation. In these countries, governments with a high margin of majority, regardless of how long they have been in power, are also more likely to consolidate fiscal accounts. The opposite seems to be the case in advanced economies, where more “mature” governments are more likely to implement fiscal consolidations and the consolidations themselves are more likely during periods of subdued growth. Evidence also suggests that tax-based consolidations may be relatively more politically challenging to implement. Finally, consolidations in advanced economies are relatively more likely to take place in the presence of fiscal rules.

This paper examines the impact of government spending on inclusive growth in developing Asia, focusing on fiscal redistribution through education, health, and social benefits. Using panel data from 16 countries over the period 1970-2017, we apply a fixed-effects logistic regression model to assess the likelihood of inclusive growth episodes. Our findings indicate that fiscal redistribution, particularly through targeted health and education spending, significantly enhances the chances of achieving inclusive growth. The results also suggest that redistributive spending helps reduce income inequality, ensuring that the benefits of economic growth are more widely shared. We further explore the practical implications of these findings through case studies of China, India, and Vietnam, demonstrating how effective government spending can foster inclusive growth. The paper highlights the importance of well-targeted fiscal policies to support sustainable and equitable development in the post-COVID recovery.

This chapter discusses trends in income distribution in recent years, both globally and within countries, including the impact of COVID-19. The channels through which fiscal policy affects income inequality are laid out and the relative effectiveness of fiscal instruments in addressing distributive concerns in advanced and developing countries reviewed. The consequences of fiscal tightening on income distribution are then discussed. The chapter concludes with an agenda for reforming taxation and spending policies in advanced and developing countries to achieve better redistribution in turbulent times ahead.

This paper discusses the determinants of inclusive growth in developing Asia, with a focus on government expenditures. We find that higher levels of fiscal redistribution (through income taxes and direct transfers) increase the probability of achieving inclusive growth, as well as the level of government spending on health and education. To spur inclusive growth in the aftermath of the COVID pandemic, countries with limited fiscal space will need to focus on improving efficiency and reallocate existing outlays to activities that benefit low-income groups. Reallocating health spending toward primary care, and education spending toward primary and secondary education, would help lead to more equitable growth. There is also scope to better target social benefits to the poor.

In this paper we discuss the concept of climate debt, which measures the cumula-tive economic damages due to CO2 emissions. We find that the climate debt (esti- mated for 131 countries) is extremely large, equaling some $59 trillion over the 1959-2018 period. Climate debt is also substantial relative to other government liabilities; in the G-20, it equals about 81 percent of GDP. Looking forward to 2035, cumulative climate debt will rise another $80 trillion. Among the biggest emitters, climate debt per capita is the highest in the United States and 6 times as high as that of China (and 25 times as high as that of India). Recent pledges to re- duce emissions (such as those in countries' Nationally Determined Contributions, or NDCs) would still leave the advanced economies with high levels of climate debt per capita relative to the developing world. Reducing emissions to meet the Par- is targets needed to limit temperature increases would more significantly reduce climate debt but would be difficult to attain in a fair manner. Given the fiscal pressures countries face from high levels of debt and rising age-related spending, countries could turn to greater taxation of energy with carbon taxes to help reduce climate debt.

We construct a novel database covering more than 450 fiscal consolidation episodes in 185 countries during the period 1979–2019. Using discrete choice models, we then examine the (broader macroeconomic and political) factors motivating these fiscal consolidation episodes. In emerging and developing countries, consolidations are more likely during “good times”: when growth is high, and countries experience positive terms of trade shocks with low inflation. In these countries, governments that have been in power longer, with a high margin of majority, are also more likely to consolidate fiscal accounts. The opposite seems to be the case in advanced economies, where new governments are more likely to implement fiscal consolidations and the consolidations themselves are more likely during “bad times.” Evidence also suggests that tax-based consolidations may be relatively more politically challenging to implement. Finally, consolidations in advanced economies are relatively more likely to take place in the presence of fiscal rules. adjustments, political cohesion increases the chance of fiscal consolidation occurrence, while there is no association with higher accountability. These results suggest that tax-based consolidations may be politically more challenging, as they appear to be accompanied by more unanimity across government than those based on expenditure cuts. prior a growth in the consolidation episode from the analysis that preceded by left-wing governments in This result from the one found in the left wing insignificantly) associated with the of a responsible of fiscal adjustment.

The emerging-market and developing economies face a multitude of grave challenges as they confront the COVID-19 pandemic, including a critical lack of budgetary space. In this context, many policymakers and economic analysts have highlighted the need to bolster the lending capacity of international financial institutions. But for most of the world's poorest economies, further borrowing would push their debt to unsustainable levels. Accordingly, the latest projections of the International Monetary Fund (IMF) show the advanced economies widening their budget deficits by 11.1% of gross domestic product (GDP) in 2020 to provide fiscal stimulus and help combat the pandemic. By contrast, the lowest-income economies are expected to expand their deficits by a mere 2.2%. What many of these countries require is not more lending but greater assistance in the form of grants. Providing additional grants makes sense from an ethical perspective and would lead to more sustainable economic development, while also benefitting the advanced economies by boosting global economic growth. In this policy brief, we estimate the cost of providing the world's poorest economies with grants sufficient to allow them to undertake just half the fiscal expansion being implemented in the advanced economies. Our results indicate that this comes out to a very manageable US$308 billion, or 0.6% of the combined GDP of the advanced economies.

This paper reviews the impact of interest rate controls in Kenya, introduced in September 2016.The intent of the controls was to reduce the cost of borrowing, expand access to credit, and increase the return on savings.However, we find that the law on interest rate controls has had the opposite effect of what was intended.Specifically, it has led to a collapse of credit to micro, small, and medium enterprises; shrinking of the loan book of the small banks; and reduced financial intermediation.We also show that interest rate caps reduced the signaling effects of monetary policy.These suggest that (i) the adverse effects could largely be avoided if the ceiling was high enough to facilitate lending to higher risk borrowers; and (ii) alternative policies could be preferable to address concerns about the high cost of credit.

Military spending in relation to national GDP and government budgets in both advanced and developing economies has fallen considerably since the end of Cold War. The previous papers have studied convergence in military spending by deploying methodologies used to analyze convergence in country growth rates and other economic variables. In this paper, we employ an improved technique and more up-to data for 138 countries during 1970–2019 to study convergence in military spending. We find that there is indeed convergence in military spending across countries, but in 3 distinct groups, with each group comprising both advanced and developing countries. A country’s membership of a group is influenced by political stability and risk of violence in the country, the level of its social spending and military spending by its neighbors. Our empirical results have important implications for a key budget component in both advanced and developing countries.

This chapter shows how China's welfare state is partially responsible for its imbalanced economic growth model, characterised by an overreliance on export-led manufacturing industries and the laggard development of the service economy. It argues that the expansive Chinese pension system facilitates the expansion of the manufacturing sector by subsidising the training of workers with industrial specific skills, as this system is designed to do, but it has an unintended consequence. The political-economic logic has shown that China's pension system is dictated by the need of the Chinese economy. Rebalancing the Chinese economy, the overriding priority in Chinese government's post-crisis macroeconomic policy, therefore requires adjustments to the Chinese pension system. The chapter examines the structure of the Chinese economy through the lens of this study's political-economic framework. China's …

This paper studies the evolution of worldwide military spending during 1970-2018.It finds that military spending in relation to GDP is converging, but into three separate groups of countries.In the largest group, responsible for 90 percent of worldwide spending, outlays have remained stubbornly high.Military spending in developing economies reacts to improvements in security conditions and military spending in neighboring countries, suggesting that further increases in the peace dividend are possible.In developing economies, rising social spending tends to crowd out military outlays, but this is not the case in advanced economies.With social outlays projected to rise as developing countries look to achieve the Sustainable Development Goals (SDGs), military spending could come under pressure to fall further.

Declining fertility and increasing longevity will lead to a slower-growing, older world population. The share of the world population older than age 65 could increase from 12% today to 38% by 2100. In most countries, population is projected to peak sometime this century and decline thereafter. These developments would place public finances of countries under pressure. Spending on age-related programs (pensions and health) would rise by 8.3 percentage points of GDP and 11.5 percentage points of GDP in more and less developed countries, respectively, between now and 2100. Projecting demographics is a risky business, and policymakers should be prepared to deal with an even faster transition to declining populations. Given the magnitude of the needed policy response, a multi-pronged approach will be required, including entitlement reform, policies that affect demographics and labor markets, better tax systems, and more efficient public expenditure. In many countries it will be impossible to fully offset the impact of demographics on age-related spending, thus necessitating broader public sector reforms to improve the public finances.

Women make up a little over half of the world’s population, but their contribution to measured economic activity and growth is far below its potential. Despite significant progress in recent decades, labor markets across the world remain divided along gender lines, and progress toward gender equality seems to have stalled. The challenges of growth, job creation, and inclusion are closely intertwined. This volume brings together key research by IMF economists on issues related to gender and macroeconomics. In addition to providing policy prescriptions and case studies from IMF member countries, the chapters also look at the gender gap from an economic point of view.