The paper develops a small dynamic macroeconomic simulation model for a representative developing country which relies on familiar macroeconomic theory and in which expectations are formed rationally. The model is useful for the analysis and simulation of important policy questions in a...

This paper compares the likely macroeconomic consequences of achieving fiscal adjustment alternatively through reductions in public consumption or public investment or through increasing tax receipts. The most favorable medium-term growth and inflation outcome are associated with reduced public...