IF BARBADOS WANTS to achieve fiscal stability in the “long run”, it must reduce the productivity gap between the public and private sectors.
However, economist Dr Clyde Mascoll has concluded that in light of historical evidence showing that economic growth here “encourages Government spending”, there would have to be a greater effort to contain Government expenditure vis-à-vis revenue.
Mascoll, who lectures in the Department of Economics, University of the West Indies, Cave Hill Campus, made his observations in a 2016 working paper, Estimating Fiscal Stability For Barbados And Jamaica: 1973 – 2010.
“From a policy perspective, the best way to achieve fiscal stability in the long run is to reduce the productivity gap between the public and private sectors.
“This would lower the relative price of public sector goods and services vis-à-vis the private sector,” he said.
“On the historical evidence, economic growth in the two countries encourages more government spending than it increases government revenue. Therefore, the governments would have to make a greater effort at containing the rate at which expenditure grows relative to revenue in the future.”
He added, “However, once the economy is growing, the relative size of the government sector would decline, but not necessarily the absolute size.”
Mascoll said his research results “suggest fiscal stability for Barbados in contrast to Jamaica over the long run”.
“In the short run, fiscal stability holds for Barbados but is inconclusive for Jamaica. The different results may be reflecting a greater unbalanced productivity gap in the Jamaica economy,” he noted.
The former Minister of State in the Ministry of Finance said the four more developed countries in the Caribbean Community (Jamaica, Guyana, Trinidad and Tobago and Barbados) are characterised by a persistent fiscal burden that is believed to have a negative effect on economic growth, the foreign reserves and the national debt in particular.
“The lack of fiscal stability in the post-independence period has been observed by academics and policy makers alike. “It is believed that expansionary fiscal measures undermined the notion of fiscal stability that was not clearly defined and examined,” he said. (SC)