Instability of government revenue and expenditure in less developed countries

The governments of most less developed countries (LDCs) depend basically on their tax and non-tax revenues to finance their expenditure programmes. Unless countervailing action is taken, instability in government revenue will result in instability in government expenditure. The latter can add considerably to the complexity of fiscal management, which may then render ineffective development planning.1 It can also reduce business confidence and lead to the precautionary discounting of prospective investment returns and so a lowering of the investment level. This note does not attempt to verify the claim that expenditure instability has adverse effects on economic growth. Its aim is the more limited one of (1) presenting estimates of instability in government revenue and expenditure, (2) examining the impact of revenue instability and other factors on expenditure instability, and (3) estimating the contributions of the various sub-categories of expenditure to the instability of government expenditure, for a group of 45 LDCs over the period 1965-1973