Fiscal Sustainability in Theory and Practice

Abstract

As its title suggests, this book is intended as an introduction to the theory of fiscal sustainability and the practice of fiscal sustainability assessment. In this introductory chapter I describe the origins of the book, its motivation, its purpose, its intended audience, the contributors, as well as providing an overview of the book’s contents. I also address intentional omissions from the book. Over time, the need for a book on fiscal sustainability analysis became apparent to the membership of the World Bank’s Quality of Fiscal Adjustment Thematic Group (QFA TG). Fiscal sustainability has become a prominent issue in developing countries, and fiscal sustainability assessments have become an increasingly demanded component of macroeconomic analysis at the World Bank. Unfortunately, there was no single basic source of information on fiscal sustainability. Country economists new to fiscal sustainability analysis could rely on sample work by other economists at the Bank, and could delve into scattered journal articles for the theoretical background. Frequently, however, work on fiscal sustainability analysis would be done by a hired expert, either from the Bank’s research group (DECRG) its Poverty Reduction and Economic Management Economic Policy group (PRMEP) or by an outside academic. I took over leadership of the QFA TG in 2001 upon joining PRMEP. At that time, fiscal sustainability analysis was identified as a core area in which PRMEP should provide leadership and support to economists working in the regional departments at the World Bank. The membership of the QFA TG–which, despite its title, discusses a wide range of fiscal issues–agreed. It was agreed that the best way the PRMEP group could provide this leadership and support was through training. To support that training I embarked on

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