Foreword  xv

Acknowledgments  xvii

About the Authors  xix

Overview  xxi

Abbreviations  lxiii

1 From Growth-Enabling to Growth-Enhancing Fiscal Policy  1

Introduction  1

Government revenue in EAP  5

Government spending in EAP  25

From growth enabling to growth enhancing: What needs to change  39

Conclusion  61

Annex 1A. Methodology for tax capacity estimation  65

Annex 1B. Explaining the size of government: A summary of theoretical perspectives  67

Annex 1C. Human capital and growth: Theory and evidence  69

Notes  70

References  71

2 Fiscal Policy for Macroeconomic Stability  81

Introduction  81

Fiscal policy over the business cycle in EAP  83

Fiscal space and debt sustainability in EAP  107

Rebuilding fiscal space in EAP: Institutions, rules, and buffers  118

Conclusion  131

Annex 2A. Supporting tables and figures  132

Annex 2B. Debt accounting  135

Notes  135

References  136

3 Fiscal Policy for Equity: Taxes, Spending, and Distributional Impacts  141

Introduction  141

Impact of taxes and spending on poverty and inequality in EAP  147

Cost-effectiveness of fiscal redistribution: The roles of revenue and expenditures  153

Designing fiscal policy for equity and growth  157

Spending more effectively: Program design and implementation  176

The political economy of fiscal reform  181

Notes  191

References  194

4 Policy Implications: A Growth-Enhancing Fiscal Compact in EAP  201

Introduction  201

Spending prioritization  203

Domestic revenue mobilization  214

Fiscal capacity and public support  217

Conclusion  230

Notes  230

References  231