ABSTRACT
In this chapter we purport to examine the macroeconomic effects of fiscal policy, particularly deficits, in developing countries. The roles of the fiscal authority in developed and developing countries vis-à-vis developed countries are markedly different. In both developed and developing countries there is a concern for raising living standards over time, but this need is much more pronounced in developing countries, given the extent and depth of poverty in these countries. In the relative absence or perpetual weakness of institutions to mobilise and direct savings, the role of the state is crucial in harnessing the resources for development. Since the regulatory apparatus is weak and market signals imperfect, the state has an important role to play in allocating investment funds. Further, with widespread poverty, there is the expectation that fiscal expenditures would play a major role in anti-poverty programmes. Pressures for populism through price controls and the like are considerable.
