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Fiscal Policy

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Training module_01_fiscal policy FISCAL POLICY Training Module International Poverty Centre Training Module No. 1 Fiscal Policy July, 2007 Training Modules of the Research Programme Economic Policies, MDGs and Poverty John W eeks and Shruti Patel Centre for Developm ent Policy & Research School of O riental & African Studies U niversity of London International Poverty Centre 1 IN TRO D U CTIO N 1.1 FISCAL PO LICY AND THE MDG s This m odule outlines the basic principles of fiscal policy in order to provide a m acro fram ew ork for the achievem ent of the Millennium Developm ent Goal targets in 2015.1 The prevailing m acroeconom ic fram ew ork used by governm ents of developing countries is that derived from stabilisation and structural adjustm ent program m es, w hich focus on price stabilisation and static allocative efficiency. These program m es are characterised by theoretical am biguities at several levels, and their basic assum ptions are at variance w ith the realities of developing countries. This helps explain w hy structural adjustm ent program m es im plem ented in m any developing countries fail to achieve their stated goals of rapid econom ic grow th, poverty reduction and balance of paym ents sustainability. In the w ords of a World Bank econom ist: How to explain that, after sustained involvem ent and m any structural adjustm ent loans, and as m any IMF’s Stand-bys, African GDP per capita has not budged from its level of 20 years ago? Moreover, in 24 African countries, GDP per capita is less than in 1975, and in 12 countries even below its 1960s level ... How to explain the recurrence of Latin crises, in countries such as Argentina, that m onths prior to the outbreak of the crisis are being praised as m odel reform ers ... How to explain that the best ‘pupils’ am ong the transition countries (Moldova,

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