The impact of small size and openness on fiscal policy and performance

This paper has as its objective the investigation, based on empirical evidence, of whether a positive correlation exists between the size of a country and the level of the overall balance as a proportion of GDP. Essentially, the approach will be based on an attempt to establish a link (if such exists) between the factors emanating from small size, and the manner in which they influence government’s fiscal performance and their approach to fiscal policy. The findings based on the data analysis will be used to make certain inferences on what influences the choice of a particular type of policy in small states, particularly as it relates to the OECS. While there is a lot said in the literature regarding circumstances unique to small states, this paper attempts to carry these extensively documented concepts a little further. Not only will the paper make reference to familiar terms such as small size, openness and vulnerability (the descriptive jargon commonly associated with small states), but it will do so while attempting to link these concepts, establishing how these interrelate and impact on the role of the state. The paper seeks to access this impact particularly with regard to the government’s fiscal operations.