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Fiscal policy and private investment in developing countries : recent evidence on key selected issues, Volume 1
Author:Chhibber, Ajay; Dailami, Mansoor; Date Stored:1990/12/01
Document Date:1990/12/31Document Type:Policy Research Working Paper
SubTopics:Environmental Economics & Policies; Economic Theory & Research; Macroeconomic Management; Trade and Regional Integration; Financial IntermediationLanguage:English
Major Sector:Public Administration, Law, and JusticeReport Number:WPS559
Sub Sectors:Public Financial ManagementCollection Title:Policy, Research, and External Affairs working papers ; no. WPS 559. Development economics
Volume No:1  

Summary: This paper discusses the following issues regarding the pace of private domestic investment, its prospects for recovery, and its role in adjustment programs of developing countries: (a) the relationship between stabilization measures affected through aggregate demand management and the need for investment recovery; (b) the complementarity or competitiveness of private and public investment; and (c) the role of capital income taxation as a tool in influencing investment incentives. It also examines the effect of the size of the fiscal deficit and alternative sources of financing the budget deficit on private investment. The key issues here are how these options affect the real interest rate, credit allocation, and the real exchange rate and how those variables in turn affect private investment. The impact of public expenditure decisions on private investment, particularly the different types of public investment choices and their impact on private investment are discussed. The paper examines the implications of tax policy for private investment decision and the effect of tax policy on private investment in the presence of capital market imperfections. It also discusses the impact of inflation in the absence of a fully indexed tax system and provides concluding thoughts.

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