Public finance, trade, and development : what have we learned?

Interdependence of trade and public finance policy are important considerations in designing macroeconomic policy, public revenue policy, and public expenditure policy. A competitive real exchange rate, improved trade performance, and trade liberalization are all built on the base of sound fiscal management. Trade policies and trade liberalization may, however have a negative effect on fiscal balances, which must be considered and compensated for. Improving competitiveness and reducing protection is likely to involve reform of both trade tariffs and domestic taxation. Greater reliance on efficiently designed user charges will also help make a country more competitive internationally. Correct priorities should be set for public expenditures - whether they are rising or falling - to ensure that they are supportive of trade and of tradeable goods production.