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

Rickard, Stephanie J. and Caraway, Teri L. (2018) International demands for austerity: examining the impact of the IMF on the public sector. Review of International Organizations. ISSN 1559-7431

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Identification Number: 10.1007/s11558-017-9295-y

Abstract

What effects do International Monetary Fund (IMF) loans have on borrow-ing countries? Even after decades of research, no consensus exists. We offer a straight-forward explanation for the seemingly mixed effects of IMF loans. We argue thatdifferent loans have different effects because of the varied conditions attached to IMFfinancing. To demonstrate this point, we investigate IMF loans with and withoutconditions that require public sector reforms in exchange for financing. We find thatthe addition of a public sector reform condition to a country’s IMF program signifi-cantly reduces government spending on the public sector wage bill. This evidencesuggest 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 theshort-term, these cuts do not persist in the longer-term. Borrowers backslide oninternationally mandated spending cuts in response to domestic political pressures.

Item Type: Article
Official URL: https://link.springer.com/journal/11558
Additional Information: © 2018 The Authors © CC BY 4.0
Divisions: Government
Subjects: H Social Sciences > HG Finance
H Social Sciences > HJ Public Finance
Sets: Departments > Government
Date Deposited: 02 Feb 2018 14:54
Last Modified: 20 Feb 2019 06:41
URI: http://eprints.lse.ac.uk/id/eprint/86636

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