In Search Of Lost Revenue: Why Restoring Fiscal Soundness After A Crisis Is Harder Than It Looks

This note argues that because fiscal deficit after a crisis owe much to a drop in tax revenues and a sluggish revenue growth, its adjustment has to rely more on revenue augmentation than commonly thought. Cutting extra spending in the wake of the crisis would not balance the book, while a natural growth of tax revenue after the recovery may take a long time before financing the pre-crisis level of expenditure. Faced with unpopular choices, the government may implicitly prefer seeing higher inflation.

Provided by: International Monetary Fund Topic: Banking Date Added: Jun 2010 Format: PDF

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