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Abstracl. This paper examines the impact of the key fiscal variables -taxes, expenditures, and deficits -on economic growth performance, using a reduced-form model and cross-sectional data for a sample of 76 developed and developing countries for the period 1972-81. Its simultaneous consideration of fiscal variables overturns the results of some existing studies. While taxes seem negatively associated with GDP growth, they are concommitant with a higher rate of growth when their benefits in terms of reducing deficits are taken into account. The positive association of government expenditures with GDP growth is rendered negative when their impact on deficits are factored in. Deficits are contractionary, and deficit-reducing tax increases and expenditure cuts are positively associated with growth. A balanced budget expansion of taxes and expenditures is negatively associated with growth. When separating the sample into low-, middle-and highincome countries, these results hold only for the second group indicating that the level of development influences the linkages between fiscal variables and GDP growth.

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This paper studies the relationship between the official and parallel exchange rates, using cointegration, Granger causality, and reduced form methods on data from three Caribbean countries, Jamaica, Guyana, and Trinidad & Tobago, for the period 1985-93. Where the central bank follows a passive policy of infrequent and large adjustments to the official rate, changes in the official rate Granger causes changes in the parallel rate, and larger disparities prevail between the two rates. Foreign exchange controls, expansionary fiscal and monetary policy, and changes of government mostly have a positive effect on the parallel market premium, with foreign exchange controls exerting the strongest impact. Copyright � 2008 The Authors; Journal compilation � 2008 Blackwell Publishing Ltd.

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