ABSTRACT
This situation is particularly common in the less developed economies. Such countries typically have very limited private financial markets; thus the government has few, if any, alternatives to borrowing from the central bank. If the Federal Reserve System does not purchase the new securities being issued by the Department of the Treasury, they can be sold to private banks, insurance companies, pension funds, and so on, in New York, but the finance ministry of the typical developing country does not have such alternatives. In addition, developing-country governments seem to have particular difficulties in controlling budget deficits. First, their economies make it difficult to collect a sizable percentage of total incomes as taxes. Much of the economy may be informal (subsistence hunting, fishing, and farming), which cannot be taxed easily. Even the market economy may be based in part on barter, which is hard to tax. When money is used, records may be incomplete, making it almost impossible to enforce an efficient income tax. Such countries often rely heavily on import and export tariffs, and have very limited tax revenues.
