,~~~~- 1 l / ") t / Policy, Research, and External Affairs 1 WORKING PAPERS Trade Policy CountryEconomics Department The WorldBank July 1991 WPS724 Fiscal Issues in Adjustment An Introduction Riccardo Faini and Jaime de Melo This summary of the fiscal issues in adjustment in developing countries focuses on the macroeconomics of adjustment (the size of fiscal adjustment, the impact of deficit reductions, and methods for reducing the deficit), fiscal system reforms (spend- ing cuts and tax reform), and new directions for research (the growth effects and the political economy of fiscal policy). The Policy, Research, and External Affairs Complex distributes PRE Working Papers to disseminate the findings of work in progress and to encourage the exchange of ideas among Bank staff and all others intcrested in development issues. These papers carry the names of the authors, reflect only their views, and should be used and cited accordingly. The findings, interpretations, and conclusions are the authors' own. They should not be attributed to the World Bank, its Boand of Directors, its management, or any of its member countries. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized