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International demands for austerity: examining the impact of the IMF on the public sector

Rickard, Stephanie J. and Caraway, Teri (2017) International demands for austerity: examining the impact of the IMF on the public sector. Review of International Organizations. ISSN 1559-7431 (In Press)

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Abstract

What effects do International Monetary Fund (IMF) loans have on borrowing countries? Even after decades of research, no consensus exists. We offer a straightforward explanation for the seemingly mixed effects of IMF loans. We argue that different loans have different effects because of the varied conditions attached to IMF financing. To demonstrate this point, we investigate IMF loans with and without conditions that require public sector reforms in exchange for financing. We find that the addition of a public sector reform condition to a country’s IMF program significantly reduces government spending on the public sector wage bill. This evidence suggest that conditions are a key mechanism linking IMF lending to policy outcomes. Although IMF loans with public sector conditions prompt cuts to the wage bill in the short-term, these cuts do not persist in the longer-term. Once international loan conditions expire, borrowers backslide on spending cuts in response to domestic political pressures.

Item Type: Article
Official URL: https://link.springer.com/journal/11558
Additional Information: © 2017 Springer Science+Business Media, LLC, part of Springer Nature
Subjects: H Social Sciences > HJ Public Finance
J Political Science > JA Political science (General)
Sets: Departments > Government
Date Deposited: 10 Jan 2018 10:33
Last Modified: 10 Jan 2018 10:33
URI: http://eprints.lse.ac.uk/id/eprint/86415

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