THE PAKISTAN DEVELOPMENT REVIEW
Guillermo E. Perry, Luis Servén, and Rodrigo Suescún (eds.). Fiscal Policy, Stabilisation, and Growth: Prudence or Abstinence? Washington, D.C: The World Bank. 2008. Paperback. 329 Pages. Price not Given.
‘Fiscal Policy, Stablisation, and Growth’ edited by Guillermo Perry, is an excellent volume covering the typical but current debate on “Does Fiscal Policy Matters”. The book highlights the procyclical and anti-investment biases embedded in fiscal policies, explores their causes and macroeconomic consequences. The text provides empirical substance to the theoretical models and offers policy and recommendations, to help overcome the procyclicality and anti-investment biases of fiscal policies adopted thereof. With wide range of technical and empirical discussions, political economy aspects of the budgets have also been examined. Though the focus of the book is Latin American and the Caribbean countries, the debate is so holistic that it can be used for policy recommendations else where as well. The book is organised in two parts; the first part, spread over four chapters, covers the procyclicality of Fiscal policy while the Part II, comprised of five chapters, elucidates the impact of fiscal policy on economic growth. The discourse takes into account the fiscal policy solvency condition and its imbedded biases towards certain policy options. Chapter 1 provides an excellent overview of what is discussed in the volume. The book argues that excessive focus of fiscal agents on short term indicators of fiscal health, namely the government debt or cash flows, may detract attention from tracking the intertemporal solvency. Such detraction will affect the macroeconomic stability and long-term growth, argues the book. Perverse incentives, that have political economy context, are at the root of flawed policies such as procyclical policies, contends the book.