Fiscal Policy: Fiscal Policy in a Developing Country

Abstract

The bibliographical note appended to the last chapter in W. A. Lewis’ The Theory of Economic Growth ends with the following sentence: ‘There is regrettably very little theoretical discussion of the fiscal problems of underdeveloped countries’.² There is ample reason for this deficiency, which has not disappeared since Lewis’ book was first published. The fiscal system and the fiscal policy of any country reflect its citizens’ general economic views and aspirations, which it may have in common with other countries, or may be peculiar to it; but they also are the result of the country’s social and cultural institutions, its resource endowment, the structure of its economy, the distribution of income, and the seat of political power, in a configuration which is inevitably unique. Any general discussion of fiscal problems is thus bound to be of limited usefulness since just below the surface of the broadest generalizations lurks a multitude of specific exceptions to the general rules. Nevertheless, some principles of fiscal policy which are pertinent to low income countries endeavouring to advance economically at a faster pace than in the past may be derived from observation and speculation.

The views expressed in this paper are those of the author and not necessarily those of the International Bank for Reconstruction and Development. The assistance of Dr. H. H. H. Eschenberg in the preparation of the statistical tables is gratefully acknowledged.