Globalization and the Need for Fiscal Reform in Developing Countries

Globalization is not a new phenomenon. However, the current form is qualitatively different from past experiences. It provides great opportunities for some countries and challenges to others. A first part of the paper identifies positive and negative effects associated with globalization. The paper then discusses reforms that countries need to undertake to better cope with this phenomenon. These reforms must reduce or eliminate obstacles of a physical, institutional, or policy nature, if they are to integrate the countries successfully in the world economy. The paper discusses next the role that fiscal policy must play. It concludes that developing countries will experience pressures to increase their public spending and thus their tax burdens. On the other hand, industrial countries will be faced with downward pressures on their tax levels and thus with the need to reduce public spending. The paper concludes with a brief description of some fiscal reforms.