-6-

only after a time lag<sup>3</sup> . There are only a handful of countries where fiscal data are adequate for any serious research. Third, given the different time and country-specific coverage of data and policy, fiscal performance cannot be compared across countries in a rigorous fashion. Fourth, because of the linkages with other policies, it is difficult to examine fiscal policy separate from other policy variables.

11. The lack of a common definition of budget deficit, in particular, makes it difficult to compare fiscal performance across countries. Ideally, the appropriate deficit to measure is the consolidated public-sector deficit which takes into account the whole public-sector - the equivalent of the current-account deficit on the external side of the economy. It would take into account not only central government, local governments, and municipal accounts, but non-financial public-enterprises, public-sector banks, the social security system, and the central bank. It would then be easy to review the impact such deficit would have on the "pure" private-sector of the economy. In practice, this may never happen for a number of reasons<sup>4</sup> , not the least of which is that the definition (and calculation) of the deficit is likely to be dictated by data availability and the interest of the researcher. This choice also depends on the role of the public-sector in the economy. Therefore, a definition of budget deficit would need to be specified beforehand. The most comprehensive definition is that given by the IMF's Governnent Financial Statistics. Information from other official and unofficial sources are often more recent, but are not standardized nor systematic with regard to coverage and methodology.

12. Even more important than the coverage of fiscal deficit is the appropriate level of this deficit and the speed of fiscal adjustment. As mentioned earlier, a budget deficit of, say, 4 percent of GDP may be adequate for one country but not for another because fiscal policy is an integral part of the policy framevork. It may be adequate for an economy with single digit-inflation but may be woefully inadequate for a country with 70 percent inflation. Similarly, a target reduction in the budget deficit, (say, 2 percentage points of GDP), may not be nearly enough for an economy where the exchange rate is being used as a nominal anchor but may be sufficient for one in which money supply serves as the anchor.

13. Because of the strong linkages between fiscal, monetary, and other macro-economic policies, the appropriateness of a particular fiscal deficit target depends on other targets for growth, inflation, and extemal and internal debt. Unless these linkages are brought out explicitly, conventional fiscal measures (such as the deficit to GDP or government debt service to revenues) shed little light on the appropriate level of fiscal deficit and consequently

> 3 It is not unusual to find data three years or older in many official or unofficial documents, for example, the IMF publication on budgets, the Government Financial Statistics.

> 4 Even if a consolidated fiscal account were available, the line drawn between public and private enterprises would always be arbitrary. Even within a closed economy, the conventional measure of fiscal deficit (the difference between total revenues and expenditures) has limitations in assessing the impact of fiscal policy on aggregate demand. For developing countries, these problems are compounded by inflation, debt arrears, and quasi-fiscal activities, as well as the temporary nature of some fiscal measures (such as the sale of public assets). Indeed, a recent IMF study has concluded that there is no such thing as the fiscal deficit. See M. Blejer and A. Cheasty, Eds. How _to Measure the F iscal Deficit._ IMF, 1993.