Fiscal Policies and Challenges in South Asia

This paper presents a brief overview of the extant fiscal situation in South Asian countries. In particular, I emphasize low tax/GDP ratios and inelastic expenditure/GDP ratios which then lead to structurally entrenched fiscal deficits. The paper also reports on the sustainability of fiscal and current account deficits in the South Asian countries. Finally, the paper reports on some important issues in tax reform in South Asian counties. These include explaining and finding an antidote for low tax/GDP ratios and analyzing the scope for a VAT. Some general principles are enunciated but many of the required reforms have to be context specific. Keywords; South Asia, Fiscal Policy, VAT JEL Classification Code: H30, H 50, H 62, H 63 All correspondence to: Prof. Raghbendra Jha, ASARC, Arndt-Corden Division of Economics, College of Asia and the Pacific, Australian National University, Canberra, ACT 0200, Australia Phone: + 61 2 6125 2683 Fax: + 61 2 6125 0443 Email :[email protected]