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Finance and Fiscal Policy For Development

Todaro/Smith ch 3 ppt

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65 views

Finance and Fiscal Policy For Development

Todaro/Smith ch 3 ppt

Uploaded by

Nguyen Van Cong
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Chapter 15

Finance and
Fiscal Policy for
Development

Copyright © 2009 Pearson Addison-Wesley. All rights reserved.


The Role of the Financial
System
• Providing payment services
• Matching savers and investors
• Generating/distributing information
• Allocating credit efficiently
• Pricing, pooling, and trading risks
• Increasing asset liquidity

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 15-2


The Bumpy Road to
Macroeconomic Stability
• Macroeconomic stabilization has three
objectives:
– Getting inflation under control
– Restoring fiscal balance by reducing
governmental spending and by raising
government tax revenues
– Eliminating the current account deficit by means
of devaluation and export promotion

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 15-3


The Bumpy Road to
Macroeconomic Stability
• Differences between MDC and LDC
financial systems
– Monetary policy
– Money supply
– Who are the Keynesian economist?
– What is currency substitution?
– Currency substitution

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 15-4


The Bumpy Road to
Macroeconomic Stability
• Differences between MDC and LDC
financial systems (cont’d)
– Transparency
– Organized and unorganized money market
– Financial liberalization

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 15-5


The Bumpy Road to
Macroeconomic Stability
• The role of central banks:
– Issuer of currency and manager of foreign
reserves
– Banker to the government
– Banker to domestic commercial banks
– Regulator of domestic financial institutions
– Operator of monetary and credit policy

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Table 15.1 Central Banking
Institutions

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The Bumpy Road to
Macroeconomic Stability
• The role of development banking
– Development banks
• Informal finance
– Rotating savings and credit association
(ROSCAs)

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Microfinance Institutions

• What is microfinance?
• Group lending schemes

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 15-9


Reforming Financial Systems

• Financial liberalization, real interest rates,


savings, and investment
– Rationing
– Financial repression

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 15-10


Figure 15.1 The Effects of Interest-
Rate Ceilings on Credit Allocation

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 15-11


Reforming Financial Systems

• Financial policy and the role of the state


– Stiglitz’ seven market failures:
• The public good nature of monitoring financial
institutions
• Externalities of monitoring selection, and lending
• Externalities of financial disruption
• Missing and incomplete markets

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 15-12


Reforming Financial Systems

• Financial policy and the role of the state


– Stiglitz’ seven market failures (cont’d):
• Imperfect competition
• Inefficiency of competitive markets in the financial
sector
• Uninformed investors

• Debate on the role of stock markets

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 15-13


Fiscal Policy for Development

• Macrostability and resource mobilization


• Taxation: direct and indirect
– Five factors of the taxation potential of a country

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 15-14


Table 15.2 Comparative Average
Levels of Tax Revenue, 1985–1997, as
a Percentage of GDP

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Table 15.3 Comparative Composition
of Tax Revenue, 1985–1997, as a
Percentage of GDP

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 15-16


Public Administration: The
Scarcest Resource

• Case of the Tazara railroad through


Tanzania and Zambia

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 15-17


State-Owned Enterprises
(SOEs)
• Improving the performance of SOEs
• Privatization: Theory and experience

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 15-18


Military Expenditures and
Economic Development

• What is military expending?

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 15-19


Table 15.4 Trends in Global Military
Spending, 1960–2000 (billions of U.S.
dollars)

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 15-20


Table 15.5 World Military Expenditures,
1994–2003 (billions of 2000 U.S.
dollars)

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 15-21


Table 15.6 Military and Social
Expenditures in Developing and
Industrial Countries, 1995

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Table 15.7 Countries with the Highest
and Lowest Expenditures on the
Military, 2002 (% of GDP)

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 15-23


Table 15.7 Countries with the Highest
and Lowest Expenditures on the
Military, 2002 (% of GDP)

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Case Study:
Chile

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Case Study: Poland

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Concepts for Review

• Central bank • Group lending schemes


• Currency board • Indirect taxes
• Currency substitution • Informal finance
• Development banks • Macroeconomic
• Direct taxes stabilization
• Financial liberalization • Microfinance
• Financial repression • Monetary policy
• Money supply

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 15-27


Concepts for Review (cont’d)

• Organized money • State-owned


markets enterprises (SOEs)
• Privatization • Transparency
• Rationing • Unorganized money
• Rotating savings and markets
credit associations
(ROSCA)

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 15-28

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