When is fiscal adjustment an illusion?
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When is fiscal adjustment an illusion? by William Russell Easterly

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Published by World Bank, Development Research Group, Macroeconomics and Growth in Washington, DC (1818 H St., NW, Washington 20433) .
Written in English

Subjects:

  • Fiscal policy,
  • Budget deficits,
  • Finance, Public

Book details:

Edition Notes

StatementWilliam Easterly.
SeriesPolicy research working paper ;, 2109, Policy research working papers ;, 2109.
Classifications
LC ClassificationsHG3881.5.W57 P63 no. 2109
The Physical Object
Pagination32 p. ;
Number of Pages32
ID Numbers
Open LibraryOL3550731M
LC Control Number2001615428

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In public choice theory, fiscal illusion is a failure to accurately perceive the amount of government theory of fiscal illusion was first developed by the Italian economist Amilcare Puviani in his book Teoria della illusione finanziaria (Theory of Financial Illusion (not yet translated into English, but translated into German in under the title Die Illusionen in der. Get this from a library! When is fiscal adjustment an illusion?. [William Easterly] -- May A simple model shows that when an outside agent forces a reduction in a government's conventional deficit (debt accumulation), the government will respond by lowering its asset accumulation. Downloadable! Fiscal adjustment is an illusion when it lowers the budget deficit or public debt but leaves the government's net worth unchanged, says the author. Conventional measures of the budget deficit largely measure the change in explicit public sector liabilities (debt). A more appropriate measure of the deficit would be the change in public sector net worth, but many . A fiscal adjustment is a reduction in the government primary budget deficit, and it can result from a reduction in government expenditures, an increase in tax revenues, or both simultaneously.. There is no a clear consensus about the definition of fiscal adjustment, but it is commonly understood as a process, instead of as a status: governments run fiscal deficits, fiscal .

Fiscal adjustment is an illusion when it lowers the budget deficit or public debt but leaves government net worth unchanged. Conventional measures of . On the Nature and Measurement of Fiscal Illusion 67 Imperfect information is not, however, synonymous with fiscal illusion. It is a necessary, but not a sufficient, condition for its existence. More specifically, fiscal illusion refers to a systematic misperception of fiscal parameters-a recurring propensity, for example, to underestimate one'sFile Size: 9MB. Guidelines for Fiscal Adjustment How Much Fiscal Adjustment Is Required? Fiscal adjustment policies should be designed within an overall methodological framework that links the implementation of a comprehensive set of policy measures to the achievement of the economy's objectives for inflation, growth, and external balance. As a result, fiscal adjustment may be partly an illusion.2 In retrospect, it is clear that accounting devices contributed to the fiscal problems that many countries are now experiencing. They made public finances look better than they really were in the years before the crisis, and therefore encouraged looser fiscal policy then. But their.

  Keynesian economics talks of the “fiscal illusion” created by government debt: the issuance of such debt can stimulate the economy in the short run by encouraging a false perception of wealth. Downloadable (with restrictions)! Fiscal adjustment is an illusion when it lowers the budget deficit or public debt but leaves government net worth unchanged. Conventional measures of the budget deficit largely show the change in public sector debt. Ideally, the measured deficit would reflect the change in public sector net worth. Many people consider it impractical to try to measure public. Easterly, William (), “ When Is Fiscal Adjustment an Illusion?” Economic Policy, vol. 14, pp. 55– Eslava, M. (), “The Political Economy of Fiscal Policy: A Survey,” RES working paper , Inter-American Development Bank. The Fiscal Illusion Introduction Throughout the analysis to this point, it has been assumed that individuals evaluate alternatives “correctly,” to the extent dictated by utility-maximizing behavior. This is not to suggest that only observable real magnitudes are relevant. If this were the case, institutional influences on decisions would not exist.