The Role of Government

Abstract

In the Caribbean, government spending accounts for a high share of GDP, particularly in Guyana where it reached a high of 44 percent over the period 1998–2003. The World Bank (2005) attributes high government expenditures in the Caribbean to a “high level of voice and accountability in government,” which it regards as “characteristic of strong democracies, even compared to countries of comparable per capita income and size” (p. 31). Also of interest is the apparent correlation between the ratios of government spending and public debt to GDP. A high debt/GDP ratio is the cumulative result of borrowing to finance persistent fiscal imbalance. Persistent fiscal imbalance in turn reflects the gap between government willingness to respond to the voice of the people for more spending and the inability of economic growth to generate tax revenues. The larger the share of resources diverted to the public sector consumption the weaker the ability of the economy to grow. This places the government in a dual role. Through its policies it tries to facilitate growth while through its excessive debt it retards growth.