Fiscal policy constraints and challenges for a small open economy: the case of Barbados

The main objective of this paper is to describe the evolution of Barbados' public finances over the period 1971-2000, discussing, where appropriate, the underlying causes of any fiscal problems over this period. The paper begins with a discussion of the trends in fiscal performance during the period under study, then touches on the possible impact of Government's budgetary policy on resource allocations, income distribution and equity, as well as the key challenges that are likely to confront Barbadian authorities in the medium to long term. These challenges must be addressed if the budgetary instrument is to continue to facilitate continued growth and development. Apart from the need to zero in on the inequities in the direct tax system, the fiscal authorities are faced with the task of adjusting the corporate tax rate to reduce the tax burden on the business sector, as well as the challenge of reforming the social security system to ensure its viability. Government is making every effort to address these issues, but more needs to be done given an increasingly uncertain international economic environment.