ABSTRACT
An efficient fiscal system plays a major role in economic growth and stability, especially in developing countries. Tanzi (1991) has listed a number of channels through which fiscal policy can affect economic growth in these countries. Fiscal measures can, for example: raise savings; channel savings into productive uses; encourage productive consumption; discourage non-productive and extravagant spending on consumption, or investment, or both; reduce inefficiency and wastage; remove fiscal bottlenecks of various kinds; reduce growth-retarding distortions in the taxation system; remove policy-induced distortions in relative factor prices; and, above all, ensure macroeconomic stability. One strand of the growth literature also shows how public infrastructure investment can boost private investment. 1
