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Brahmbhatt and Canuto
Liberia provides an example of this method in action. It traces the likely impacts of a theoretical cut in educational spending on the probability of access to education for different individuals. This information should be useful in designing more effective policy responses to a crisis.
Fiscal Policy Lessons from the Global Crisis in Sub-Saharan Africa Chapter 6 by Krumm and Kularatne assesses the fiscal response to the 2009 global crisis in 15 LICs in Sub-Saharan Africa. The crisis required short-term responses, but these responses have implications for the medium- and long-term challenges related to growth and poverty reduction—issues that are particularly pressing in Sub-Saharan Africa. In evaluating what happened, it is important to note that many African economies came into the crisis on the heels of significant improvements in economic and fiscal performance over the preceding decade. Over 70 percent of them ran primary fiscal surpluses (compared with less than 30 percent in the early 1990s); public debt–to–GDP ratios had declined sharply, in part because of debt relief but also because of domestic fiscal adjustment; and many countries were experiencing higher growth and expanding productive public and private investment. In most African LICs, where automatic fiscal stabilizers are limited, the principal fiscal impact of the crisis was a drop in government revenue. Revenue declines were particularly large in highly commodity-dependent economies. The main fiscal policy instrument available to governments in Sub-Saharan Africa was a discretionary change in expenditure. In principle, these governments had a number of fiscal policy options available: adjustment, defined as a cut in spending in response to the revenue drop; accommodation, defined as maintaining spending unchanged; and stimulus, defined as increasing spending notwithstanding the revenue decline. Krumm and Kularatne find that the bulk of the countries in the sample undertook full or partial accommodation of revenue declines, and some even undertook countercyclical stimulus. Only a relatively small number of countries undertook full adjustment in the face of revenue declines. Also important, the authors find a close link between the availability of fiscal space and low risk of debt distress and the type of fiscal policy response to the crisis: the more fiscal space a country had built up before the crisis, the less it was obliged to undertake full adjustment and the more options it had in accommodating the revenue shock or even undertaking stimulus.