Do Private Sector Deficits Matter?

Download or read book Do Private Sector Deficits Matter? written by Manuel Marfán and published by CEPAL/ECLAC. This book was released on 2000 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: The purpose of this paper is to emphasis the links between external vulnerability and excess domestic expenditure explained by private sector behaviour. At the time of their last crises, Mexico and most of the Southeast Asian economies showed significant current account deficits while their fiscal accounts were under control. This was also the case in Chile 1996-97, prior to its recession. The mix of large current account deficits and fiscal balance or fiscal surplus, implies that the origin of excess domestic expenditure, and of vulnerability, was non-fiscal. Using a formal analytical model, this paper looks at the macroeconomic consequences of non-fiscal expenditure and the consequences of inconsistent policy targets. Policy options are also analysed. Key conclusions are: fiscal policy is the key decision variable for attaining a consistent current account; private expenditure crowds out fiscal policy.