ABSTRACT
Any attempt to discuss the relation between fiscal policy and external economic relations as a separate aspect of governmental financial policy for economic development necessarily involves a somewhat severe abstraction, since for the purpose of analysing the growth process and the contribution that fiscal policy may make to it, economic relations with the rest of the world ought to be regarded merely as an extension of domestic economic activity. Concentration on the balance of payments as the aspect of external economic relations with which fiscal policy is or should be concerned involves a further abstraction, and a rather dangerous one, since the balance-of-payments, position of a country depends at least as much on another instrument of economic policy—exchange rate policy—as it does on fiscal policy. Not only must the relevance of exchange rate policy be kept constantly in mind, but also the temptation to stop analysis short at the balance-of-payments effects of alternative fiscal policies must be avoided, if the international economics of fiscal policy are to be examined scientifically. Accordingly, this paper begins with a general discussion of the international aspects of economic development, proceeds to an examination of the tendency of countries pursuing planned economic development to suffer chronic balance-of-payments problems, discusses the implications of this tendency for economic policy in general and fiscal policy in particular, and concludes with some observations on import-substitution policies, and on policy towards private foreign investment.
