| Fiscal Policy, Hidden Deficits, and Currency Crises (2007) | |||||||||||||
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| Budget deficits, as conventionally measured, suffer from many measurement and methodological problems. Researchers who have used these conventional deficits to explain currency crises, therefore, unsurprisingly, have found little evidence of any systematic link between the two. We provide an alternative definition of budget deficit and show that there is a close association between the number of currency crises and our measure of deficit. If asked to pick a single concept that best measures the fiscal situation of an economy, many of us would pick “budget deficit, ” but budget deficit, as conventionally measured, suffers from many problems. These problems, which are mostly measurement-related and methodological in nature and more severe in developing than in industrial countries, arise because of a variety of reasons. These range from complicated budgetary accounting practices to noninclusion of corporate and bank restructuring expenses, incurred during financial crises, into the budget. Not many attempts have been made in the literature to find out how | |||||||||||||
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