Do IMF Programs Discipline Budget Deficit? - The Effects of IMF Programs on Government Budget Balance, Expenditure, and Revenue

This paper aims to explain the effects of IMF programs on central government's budget balance, expenditure, and revenue. Previous works in the literature largely ignored the mechanisms by which IMF programs have effects, and this paper contributes to the literature by looking at the micro-level policy impacts of the IMF through conditionality. There have been only a few studies that address the question of IMF programs' effects on budget balance, and they suffer from inaccurate measures of budget balance and do not control for the selection bias that is commonly associated with the studies of program participation. This paper employs improved measures of budget balance and methods that correct for selection bias. Using the data of ninety-three developing countries from 1951 to 2000, this paper shall argue that IMF programs are effective in reducing government expenditure but fail to increase revenue. Therefore, the IMF program participation does not influence overall budget deficits