024 Article A006 en

The Full Employment Budget Surplus
Concept as a Tool of Fiscal Analysis

in the United States1
Daryl A. Dixon *
T HE FULL EMPLOYMENT BUDGET SURPLUS CONCEPT,

which has been developed almost exclusively in the United States,
originates from a proposal made in 1947 by the Committee for Eco-
nomic Development that the budget be designed to "yield a moderate
surplus at high-employment national income." 2 The concept found
favor during the early 1960s, and the Annual Reports of the Council
of Economic Advisers for 1964 and 1965 analyzed the budget program
in terms of the full employment surplus. For the next few years the
concept drew little official attention, but the present Administration has
recently made use of the concept. In particular, the President stated
in his Budget Message for 1972:
It [the 1972 Budget] adopts the idea of a "full employment budget," in
which spending does not exceed the revenues the economy could generate
under the existing tax system at a time of full employment. In this way, the
budget is used as a tool to promote orderly economic expansion, but the
impact of the resulting actual deficit is in sharp contrast to the inflationary
pressure created by the deficits of the late sixties, which were the result of
excessive spending that went far beyond full employment revenues. The full
employment budget idea is in the nature of a self-fulfilling prophecy: By
operating as if we were at full employment, we will help to bring about that
full employment.^
* Mr. Dixon, economist in the Fiscal Analysis Division of the Fiscal Affairs
Department, is a graduate of the University of Queensland (Australia) and
Cambridge University. He formerly taught at the University of Calgary (Alberta,
Canada)
1
and the Australian National University.
This paper is the second in a series of studies of the techniques of fiscal
analysis applied in selected industrial countries that has been undertaken by the
Fund's Fiscal Affairs Department. The first paper, "Techniques of Fiscal Analy-
sis in the Netherlands," also by Mr. Dixon, appeared in the November 1972
issue of Staff Papers (pp. 615-46).
2
Committee for Economic Development, Taxes and the Budget: A Program
for Prosperity in a Free Economy (New York, November 1947). For a com-
prehensive description of the uses of the concept and its evolution, see Arthur M.
Okun and Nancy H. Teeters, "The Full Employment Surplus Revisited," Brook-
ings Papers on Economic Activity: 1 (1970), pp. 77-110, and the references
contained therein.
3
The Budget of the United States Government, Fiscal Year 1972 (Washing-
ton, 1971), p. 7.
203
©International Monetary Fund. Not for Redistribution

204 INTERNATIONAL MONETARY FUND STAFF PAPERS
The purpose of this paper is to describe the full employment budget

surplus concept and to analyze its usefulness in the particular context of
its applicability for fiscal analysis in the United States and other coun-
tries. It is intended to concentrate on the use of the concept as a
summary measure of budget impact for purposes of both budgetary
formulation and evaluation, but attention is also paid to possible uses
in formulating budgetary rules such as the ones already outlined. A
detailed description of the methods actually applied in practice to
measure the size of the full employment surplus is to be found in
other studies.4 This paper focuses on the definition of the full employ-
ment surplus and the various uses of this budget concept. The reader
is also referred to other studies for a systematic quantitative discussion
of the accuracy of the concept as an indicator of the expansiveness of
fiscal policy in the United States.5
Section I describes the concept of the full employment budget surplus
and its method of estimation. Section II identifies and discusses two
broad categories of use of the concept: (1) its general use as a sum-
mary measure of budget impact for purposes of ex ante policy formula-
tion and ex post policy evaluation, and (2) its use to govern the
formulation of budgetary policy. The principal emphasis in this paper is
on the first of these two uses of the concept, and Section III examines
the economic rationale for its use in this context. This section also looks
at the merits of the argument that the full employment surplus permits
the separation of the effects on the budget surplus of discretionary
action from the automatic effects resulting from fluctuations in the level
of gross national product (GNP) and presents a specific comparison
of the relative merits of the full employment surplus with the actual
budget surplus as a summary measure. Section IV examines the stabi-
4
See, in particular, Okun and Teeters, op. cit.; Nancy H. Teeters, "Estimates
of the Full-Employment Surplus, 1955-1964," The Review of Economics and
Statistics, Vol. XLVII (1965), pp. 309-21; Arthur M. Okun, "Potential GNP:
Its Measurement and Significance," 7962 Proceedings of the Business and Eco-
nomic Statistics Section, American Statistical Association (Washington, 1962),
pp. 98-104; Michael E. Levy, Fiscal Policy, Cycles and Growth, National Indus-
trial Conference Board, Studies in Business Economics, No. 81 (New York,
1963), Chapter 6, pp. 82-97; and Keith Carlson, "Estimates of the High-
Employment Budget: 1947-1967," Federal Reserve Bank of St. Louis, Review,
Vol.
r>
49 (June 1967), pp. 6-14.
See William H. Oakland, "Budgetary Measures of Fiscal Performance," The
Southern Economic Journal, Vol. XXXV (April 1969), pp. 347-58; and E.
Gerald Corrigan, "The Measurement and Importance of Fiscal Policy Changes,"
Federal Reserve Bank of New York, Monthly Review, Vol. 52 (June 1970),
pp. 133-45.

FULL EMPLOYMENT BUDGET SURPLUS CONCEPT IN U. S. 205
lization policy implications of the use of the full employment surplus

as a rule in budget formation. Section V presents an overall evaluation
of the full employment surplus. Problems of measuring the surplus are
considered first and then, using the arguments developed in the preced-
ing sections of the paper, the merits of the full employment surplus
vis-à-vis the actual surplus are summarized.
I. Definition and Measurement of the Full

Employment Budget Surplus
The full employment budget surplus (or deficit) is an estimate of
what the budget result would be with a given expenditure and taxation
program if the economy were moving along the path of potential full
employment output.6 Thus, it is designed to be independent of fluctua-
tions in the level of economic activity (i.e., deviation from the full
employment level of output), and hence the automatic effect of any
such fluctuations is removed from the budget result. It is clearly a hypo-
thetical construct designed for the purpose of combining estimates of
government revenue at a standardized full employment level of output
for any given existing (or assumed) structure of taxation with the exist-
ing (or projected) government expenditure.7 Only one component of
government expenditure—unemployment benefits—is assumed to vary
with the level of economic activity, and with this one exception the
concept is designed really to isolate from the budget result any fluctua-
tion in the level of revenue resulting from fluctuations in the level of
economic activity. If items of expenditure other than unemployment
compensation varied systematically with the level of economic activity,
it would also be necessary to include such variations in the measure-
ment of the full employment surplus.8 However, to date, automatic
6
For expositional convenience, it is assumed throughout this paper that a
budget surplus may be either positive or negative. When it is negative, it is, of
course,
7
the conventionally defined deficit.
For a more detailed description, see Robert Solomon, "A Note on the Full
Employment Budget Surplus," The Review of Economics and Statistics, Vol. XLVI
(1964),
8
pp. 105-108, where the philosophical bases of this are explored succinctly.
Teeters, however, has recently identified changes in federal payments (cor-
responding to changes in the level of unemployment) for retirement, welfare,
veterans' benefits, Medicare, Medicaid, and aid to families with dependent
children. Because these induced changes in the level of expenditure are not
presently accounted for in measuring the full employment surplus, Teeters esti-

fluctuations in the level of other items of government expenditure have

not been allowed in calculations of the size of the surplus in the United
States, and in the use of the concept, emphasis has been placed almost
exclusively on changes in the level of revenue resulting from fluctuations
in the level of output.9
The size of the full employment budget surplus at any point in time
will change with any of the following variables : the level of government
expenditure, the rates at which taxation is levied, and the structure and
rates of payment of unemployment compensation, but not with the
level of economic activity. An increase in the rates of personal income
taxation, for example, would increase the size of the surplus, while any
increase in government expenditure, including the rates of unemploy-
ment compensation, or reductions in rates of taxation would reduce it.10
Over time, the size of the surplus will also vary with changes in the
potential output that correspond to changes in the productive potential
of the economy, provided that there are no countervailing changes in
policy instruments.
QUANTIFICATION OF THE CONCEPT n

Estimates of tax revenues and government expenditure expressed in
money terms can be derived from the estimate of potential output also
expressed in money terms at any given point in time. The full employ-
ment surplus then represents the difference between the estimated full
employment revenues and full employment expenditure. In the United
States, the level of potential output consistent with the preferred defini-
tion of the full employment of labor is first calculated in real terms and
is then converted into money terms by using the implicit GNP deflator
mates that in the fiscal year 1972 the full employment surplus would have been
approximately $8 billion larger than the official estimates. See Nancy H. Teeters,
"Built-in Flexibility of Federal Expenditures," Brookings Papers on Economic
Activity:
9
3 (1971), pp. 615-48.
The U.S. budget for 1972 on a unified accounts basis was presented as one
balanced at full employment. In this computation, no adjustments were made
for fluctuations in the level of unemployment benefits. Ibid., p. 647. Such
fluctuations have been allowed for, however, in the official calculations of the
size10 of the 1973 full employment surplus.
Total expenditure will be lower at full employment than at levels of output
at less than full employment because, for any given rates of unemployment
compensation,
11
the level of compensation will decrease as employment increases.
For a summary description of the method of computing the full employment
surplus, see also the Economic Report of the President (Washington, February
1971), pp. 71-72.

as the relevant price index. The value of the GNP price deflator index
at the actual level of income—not a hypothetical value of what this
index would be if the economy were at full employment—is used in this
exercise. That is to say, the "full employment level of income" used in
calculations of the size of the full employment surplus does not repre-
sent an estimate of what the actual level of full employment income in
money terms would be, except when the economy is actually operating
at full employment.
Once the full employment level of GNP in money terms has been
determined, assumptions about the functional components of full
employment income are made for purposes of estimating the revenue.
Standard practice in the United States involves the estimation of the
shares of the various components of income, such as personal income
and corporate profits, for the purpose of applying average effective rates
of taxation to determine full employment revenues. In contrast to the
procedure whereby the actual GNP price deflator is used to estimate
full employment GNP, the actual shares of income in actual current
GNP are not used to estimate income shares in full employment GNP,
because the relative shares of the various income components tend to
vary in a cyclical fashion. For this reason, an attempt is made to esti-
mate what the relative shares of the various components of income
would be at full employment for calculating the full employment tax
revenue.12 Errors in estimating the size of the full employment surplus
will arise if income shares are estimated incorrectly. This problem is
discussed in Section V.
On the expenditure side of the budget, except for unemployment com-
pensation it is assumed that the level of expenditure does not vary
automatically with the level of economic activity. Thus, the determina-
tion of the level of full employment expenditure requires only the
additional step of determining the level of payments of unemployment
compensation corresponding to the full employment of labor. The full
employment surplus is then calculated as the difference between full
employment revenues and expenditure.
THE TREATMENT OF PRICE CHANGES
In measuring the size of the full employment surplus, it is assumed

implicitly that the level of expenditure expressed in money terms does
12
See also Okun and Teeters, op. cit., pp. 82-84.

not vary automatically with the rate of inflation, but that the level of
full employment revenues does vary because potential output expressed
in money terms changes with the level of the GNP price deflator used
in its calculation. Thus, the size of the full employment surplus is
crucially dependent on the price assumptions implicit in its computation.
As mentioned previously, no attempt is made to estimate what the
level of prices would be at full employment in calculating potential
output in money terms. Accordingly, unless the economy is actually
operating at or close to full employment, the estimate of full employment
revenues will not, in fact, indicate what the size of actual revenues
expressed in money terms would be if the level of unemployment were
to change substantially and to result in a change in the anticipated rate
of inflation. However, in the view of Okun and Teeters, the difficulties
posed by inflation for measuring full employment budget revenues are
mitigated because some government expenditure responds more or less
automatically to inflation.13 Any such variation in expenditure would
serve to offset increases in the size of the surplus that otherwise would
be brought about by a change in the rate of inflation, but by definition
the size of the calculated full employment surplus increases with the rate
of inflation assumed in its calculation.
This point has important implications for both ex post and ex ante
evaluations of any budget that uses this concept and is examined in
detail later in this paper. It will suffice here to indicate that the antici-
pated rate of inflation used will significantly influence the absolute
magnitude of the calculated surplus. A similar although distinguishable
complication for using the concept in periods of inflation also arises for
ex post evaluations of any budget, because in any such computations
the actual rate of inflation is used in calculating the size of the full
employment surplus, even though that rate of inflation may differ from
the full employment rate of inflation and may have been influenced by
the budgetary action under examination.
IL The Uses of the Full Employment Budget

Surplus Concept
The uses of the full employment budget surplus concept are in two
broad categories: the first is its general use as a summary measure of
is ibid., p. 93.

the impact of the budget, whereas the second is its use as a rule designed
to govern the formulation of budgetary action by the government. The
present U.S. Administration is clearly guided by the concept of a
full employment surplus in undertaking budgetary action, as can be
witnessed by the following statement of the President:
At times the economic situation permits—even calls for—a budget deficit.
There is one basic guideline for the budget, however, which we should never
violate: except in emergency conditions, expenditures must never be allowed
to outrun the revenues that the tax system would produce at reasonably full
employment.14
However, later in 1971 there were discretionary reductions in tax rates,
which (principally) resulted in changing the original budget, planned
to be in balance at full employment, into one with an anticipated full
employment deficit of $8 billion. In the budget for the fiscal year 1973,
which is expected to be balanced at full employment, the President
restated his continued commitment to the rule just given.
While some examination of the use of the full employment budget
concept in the formulation of budgetary policy is clearly warranted,
attention in this paper is focused on the use of the full employment
budget surplus as a summary measure of fiscal action—not least
because such use can be subjected to detailed theoretical examination.15
Detailed considerations of the use of the full employment surplus as a
rule for formulating policy involve the examination of political, his-
torical, and other institutional factors that gave rise to the introduction
of the rule and are best treated separately. Certain of the theoretical
implications of the use of the full employment budget surplus concept,
however, will be examined because of their immediate relevance to the
nature of fiscal policy if such rules were to be adopted in any given
country.
As a summary measure, the full employment surplus concept has
been put to a variety of uses, not all of which are readily supportable
on theoretical grounds. The major uses of the concept to be considered
here rely for theoretical justification on the judgment that as a summary
14
The U.S. Budget in Brief, Fiscal Year 1972 (Washington, 1971), p. 6. See
also Richard E. Slitor, "The Full-Employment Budget Concept and Its Current
Usage by the Federal Government" (paper presented to the West Virginia Tax
Institute
15
Conference at Pipestem, West Virginia, September 28, 1971).
The term "summary measure (or indicator) of fiscal action" is used in the
following sections for expositional convenience. It refers to the use of the
summary measure for either or both the ex post evaluation of policy and
ex ante policy formulations.

indicator the full employment surplus is superior to the actual budget

surplus. This judgment rests on the argument that the full employment
surplus concept separates the effects of the budget on the economy from
the effects of the economy on the budget at the standardized full
employment level of output. As a consequence of this separation, it is
then possible to compare different budgets either for ex ante budget
planning purposes at one point in time, or for ex post budgetary eval-
uation at different points in time. One important instance of its use as a
summary measure of the overall restrictiveness of the budget was the
emphasis that the proponents of the concept placed on the magnitude
of the full employment surplus early in the 1960s when the economy
had been operating at levels of actual output that were significantly
less than potential output.16
III. The Economic Rationale of the Full

Employment Budget Surplus Concept
For any budgeted level of government expenditure it is possible to
envisage a range of actual budget outcomes depending on the level of
GNP and on corresponding revenues achieved in any given period.17
On this basis, for any given budget, a hypothetical schedule relating the
size of the budget surplus to the level of GNP can be constructed, and
the full employment surplus and the actual surplus will represent two
points on this schedule.18 A movement along the function would indi-
cate a change in the size of the budget result consequent upon the
change in GNP, while a shift in the curve would indicate a change in
budgetary policy. A shift in the function can result from a change in
either the level of expenditure (except for unemployment compensa-
tion) or in the rates and forms of levying taxation. Any discretionary
change in the level of expenditure will shift the function vertically with-
16
The principal concern of the economists who were advising the Administra-
tion early in the 1960s was with the extent of the fiscal drag and the resulting
need for a tax cut. See, for example, the views expressed in Walter W. Heller,
New17
Dimensions of Political Economy (Harvard University Press, 1966).
For expositional convenience, it is here assumed that no expenditure (that
is, including unemployment compensation) varies automatically with the level of
economic activity. The relaxation of this assumption does not affect the conclu-
sions
18
of this section.
For a discussion of the program function that relates GNP to the budget
surplus, see The Annual Report of the Council of Economic Advisers (Wash-
ington, 1962), pp. 77-81.

FULL EMPLOYMENT BUDGET SURPLUS CONCEPT IN U.S. 211
out changing its slope, whereas discretionary changes in taxation may

result in a vertical shift of the curve, a change in its slope, or some
combination of these two. That is to say, discretionary changes in taxa-
tion may affect both the level of revenue collections at any given level
of output and the income elasticity of the revenue system, and these
would be reflected in the shape of the curve relating the size of the
budget surplus to the level of GNP.
In Chart 1, A A is a schedule (assumed to be linear for expositional
convenience) relating the size of the actual budget surplus to GNP
for a given budget.19 The schedules BB and CC have been derived from
A A by assuming discretionary changes in the level of expenditure (BB)
and in taxation (CC), and the vertical distances ab and ac measure (at
the assumed level of GNP corresponding to full employment ( Y F ) ) the
extent of the discretionary action that caused the movement of the
curve A A. The net discretionary changes in revenue and expenditure
could, however, also be measured at any other level of income, but
when the slope of the function changes, as from AA to CC, the size
of the estimate changes with the level of income at which it is
measured.20 In the situation depicted in Chart 1, the estimated discre-
tionary increase in tax revenue is larger when it is measured at full
employment (i.e., at YF) than at levels of GNP less than YF. Chart 1
depicts the static situation where three alternative budgets are com-
pared at any given point in time, and in this context the measurement
of size of discretionary measures would pose few problems other than
the estimation of the position of the curves, at least in the relevant
ranges of income at which it is desired to measure the discretionary
changes.
Chart 1 can also be interpreted in a dynamic context by assuming
that A A, BB, and CC are schedules corresponding to budgets at three
successive periods of time. BB, derived from the second-period budget,
would reflect changes in expenditure from the first-period budget (AA),
19
If the revenue system has a constant income elasticity over a considerable
range of income, the schedule will be nonlinear over this range, because with
expenditure assumed to be invariant, any increase in revenues will increase the
budget
20
surplus as a percentage of GNP.
Discretionary fiscal action will normally result in a change in the level of
GNP and in a corresponding automatic change in government revenues. How-
ever, in separating the discretionary component of government action, it is
generally assumed that the level of income at which it is desired to measure the
discretionary change does not vary because of the budgetary action. This
assumption is also adopted in this paper.

discretionary changes in taxation that do not affect the slope of the

schedule, or some combination of these two actions. In the third period,
however, discretionary changes in taxation altering the income elasti-
city of the tax system must have been introduced to change the slope
of CC. The size of the full employment surplus in the successive periods
will also be influenced by the automatic growth of revenue correspond-
ing to the growth of full employment income over this period. A separa-
tion of this automatic growth in revenue is then required if judgment is
to be passed on discretionary budgetary policy (however defined) using
the full employment surplus. This is in contrast to the situation at any
given point in time when automatic changes in the size of the full
employment surplus cannot occur.
CHART 1. COMPARISON OF THREE HYPOTHETICAL SCHEDULES OF THE

RELATIONSHIP BETWEEN THE ACTUAL BUDGET SURPLUS AND THE
LEVEL OF GROSS NATIONAL PRODUCT (GNP)
Levels of GNP corresponding to various levels of unemployment
Nevertheless, a larger full employment surplus will in all circum-

stances indicate that the budget surplus is larger in one situation than
in another, at least in the ranges of income close to full employment.
This information is relevant for evaluating the effect of the budget on
aggregate demand at these levels of income, but, as will be shown, a
higher full employment surplus does not necessarily indicate the relative

effect on aggregate demand of these alternative budgets at significantly

different levels of income. Chart 2 compares two budgets by showing
the relationship between the relevant schedules relating the actual bud-
get result and the level of GNP. It is assumed that the budget corre-
sponding to BB is one that is designed to yield a small surplus at full
employment (i.e., at the level of GNP, YF), whereas the budget corre-
sponding to A A would be in considerable surplus at this level of income.
The latter budget is clearly more restrictive than the former if the full
employment level of income is taken as the reference point, but when
the comparison is made at levels of income less than YA in the chart,
the opposite conclusion may be reached. The implication of this is that
the full employment level of income cannot be used unequivocally to
pass judgment on the expansiveness of budgetary policy, even when
attention is not confined solely to discretionary policy. This would not
preclude the use of the full employment surplus as a guide for current
policy at levels of income less than full employment, except when
changes in the tax structure have occurred and when it is possible that
schedules similar to those depicted in Chart 2 may cross in the relevant
ranges of income. The technical conditions under which it is possible
CHART 2. COMPARISON OF Two HYPOTHETICAL SCHEDULES OF THE RELATIONSHIP

BETWEEN THE ACTUAL BUDGET SURPLUS AND THE LEVEL OF GROSS
NATIONAL PRODUCT (GNP) IN WHICH THE SCHEDULES
CROSS BEFORE FULL EMPLOYMENT
Levels of GNP corresponding to various levels of unemployment

for schedules to cross have been described elsewhere.21 For the curves
to cross requires that the rates and forms of levying taxation change
substantially. Thus, only when significant changes in the structure of
tax schedules have taken place would it be necessary to consider
whether the evaluation of budgets at full employment yields quantitative
results consistent with those that would be derived at levels of income
at less than full employment.
COMPARISON WITH THE ACTUAL SURPLUS

The consensus of opinion of users of the full employment budget
surplus concept would be with Okun and Teeters, who state that the
full employment surplus is not and was never meant to be a precise
measure of the fiscal impact of the budget for use by the expert.22 In
their opinion, the concept can be considered as a simple one-parameter
description that is a superior alternative to the actual budget surplus
as an indicator of fiscal policy. Its superiority arises, in their view,
from the fact that the full employment surplus permits the separation
of the effects of the budget on the economy from the effects of the
economy on the budget, that is, the full employment surplus permits
the separation of the discretionary components of government fiscal
action. Even though this opinion is theoretically correct only in the
static context when the level of potential output does not change, the
relative merits of the full employment surplus and the actual surplus
as summary indicators of budgetary policy are considered in some
detail here.
That the full employment surplus permits the isolation of discretionary
changes in budgetary action in only a static context should be apparent
from the preceding discussion. For if the level of potential output changes,
the resulting automatic growth in revenue will be reflected in the change
of the full employment surplus over time. In the normal dynamic context
of an economy when potential output in money terms increases with
both the supply of factors of production and inflation, additional infor-
mation on the growth of revenue associated with this increase in
potential output is necessary if the discretionary component of govern-
ment fiscal action is to be identified. Solomon has proposed a method
for separating the automatic components of the change in the full
21
22
See Oakland, op. cit., pp. 353-54.
Okun and Teeters, op. cit., p. 83.

FULL EMPLOYMENT BUDGET SURPLUS CONCEPT TN U. S. 215
employment surplus,23 but this method is only an approximate one that

in any case does not differ in principle from a similar method of deter-
mining the extent of the automatic change in the size of the actual
budget surplus. Thus, the full employment surplus can be superior to
the actual surplus as a summary indicator for the reasons provided by
Okun and Teeters only in the following conditions: (1) in a static
context when ex ante comparisons are being made of alternative budget
strategies, and (2) in a dynamic context in which one is willing to
assume that a budget surplus that includes the effect on revenue of the
growth over time of the full employment level of income is conceptually
superior to one that is affected by automatic fluctuations in revenue
resulting from changes in the level of income. Also, as mentioned pre-
viously, it is possible that the full employment surplus is an erroneous
indicator of the restrictiveness of alternative budgets at the current
level of income if significant discretionary changes in taxation have
occurred.24 For this reason, the preference of the full employment
surplus over the actual surplus requires an additional assumption.
Unless the normal growth in expenditure matches the automatic
growth in revenues with unchanged tax rates resulting from the growth
in full employment income, the full employment concept in a dynamic
context is subject to the same defect as the actual budget result in
reflecting the effects of automatic changes in the budget result, owing
to changes in the level of income as well as of discretionary government
action. Expressing the size of the full employment surplus as a per-
centage of potential output and the size of the actual budget surplus
as a percentage of the actual level of income will provide a more
meaningful basis for comparisons over time, but it will not serve to
identify whether any growth in the size of the surplus relative to actual
or potential output is the result of automatic forces or of policy action
by the government.25 There is one situation, however, in which the
full employment surplus is the superior indicator of the direction of
discretionary fiscal policy even in a dynamic context, viz., when the
23
Robert Solomon, "The Full Employment Budget Surplus as an Analytical
Concept," in 1962 Proceedings of the Business and Economic Statistics Section
(cited in footnote 4), p. 108. See also F. C. Miller, "The Full Employment
Budget Surplus and Canadian Fiscal Policy, 1957-1962," Canadian Tax Journal,
Vol. XII (1964), pp. 445-46.
24
See pages 211-14.
25
For a further discussion of this point, see Miller, op. cit.

size of the full employment surplus falls between two successive periods
of time. In an economy in which potential output is increasing, and in
which the general price level does not fall between the successive
periods of time, a reduction in the absolute size of the full employment
surplus over time must indicate that discretionary fiscal policy has
become less restrictive, because the automatic increase in the size of
full employment revenues must always be a positive magnitude. By
contrast, a reduction in the size of the actual budget surplus over the
same period may reflect either a decline in the level of economic activity
or stimulative discretionary fiscal action. Indeed, it is well recognized
that stimulative discretionary fiscal action may increase the size of the
actual budget surplus over time, but it is conceptually not possible for
the full employment surplus to be so affected.
If comparisons of the size of the full employment surpluses relative
to potential output are made over time, this conclusion must be modi-
fied, because an increase in the size of the full employment surplus in
absolute terms is consistent with a fall in the size of the surplus relative
to potential output. Thus, a decrease in the size of the full employment
surplus relative to potential output does not necessarily indicate a less
restrictive discretionary fiscal policy in the later period of time; it may
well reflect a revenue system that is relatively income inelastic at full
employment. Nevertheless, if, as in the United States, the built-in
elasticity of the revenue system at full employment is equal to or
greater than unity, a reduction in the size of the full employment sur-
plus relative to potential output will indicate unequivocally a less
restrictive discretionary fiscal policy at successive points in time.
Naturally, this advantage of the full employment surplus over the actual
surplus in indicating the nature of discretionary fiscal policy is asym-
metrical and does not apply to situations where the size of the full
employment surplus relative to potential output increases.
Both the full employment surplus and the actual budget surplus are
affected in much the same way by assumed or actual changes in the
price level in any period of time. In particular, the absolute size of both
surpluses will be increased for any given level of expenditure (defined
in money terms) if the rate of inflation used in calculating; the size of
the surplus is increased. However, when actual output is less than
potential output, the level of expenditure assumed in the calculation
of the full employment surplus is equal to or less than the level of

expenditure included in the calculation of the actual surplus, and the

increase in the absolute size of the full employment surplus will exceed
that in the size of the actual surplus for any increase in the assumed
or actual rate of inflation used in the budget calculations. If the actual
rate of inflation is greater than that assumed in ex ante budget calcula-
tions when actual output is less than potential output, the size of both
the ex post actual surplus and the ex post full employment surplus will
be greater than the ex ante estimates of the size of these surpluses. It
then follows that the ex post judgment on the expansiveness of fiscal
policy using the full employment surplus will be subject to complica-
tions similar to those inherent in using the actual budget surplus for
the same purposes when the actual rate of inflation differs from that
used in budget planning estimates.
This proposition might suggest that the size of the full employment
surplus might be measured at some standardized or invariant rate of
inflation rather than at the actual price level and thus avoid the com-
plication posed by inflation for the evaluation of fiscal policy using the
actual surplus. The problem of dealing with inflation when using the
full employment surplus has been considered in detail by Okun and
Teeters,26 and from that analysis it is readily apparent that such a
proposition cannot be considered as a practical one in periods of high
rates of inflation, because the relationship between actual GNP in
money terms and potential GNP at the hypothetical price level would
depart increasingly from that between actual and potential GNP at cur-
rent market prices. The confusing situation where the size of the actual
surplus exceeds the full employment surplus at levels of output at less
than full employment might, for example, result quickly under such a
procedure. In short, the full employment surplus concept does not per-
mit a resolution of the problems posed by the existence of inflation for
the evaluation of fiscal policy using the actual surplus.
THE QUESTION OF WEIGHTING
At the theoretical level, the choice of the most suitable summary

indicator of the budget impact involves a decision on whether the vari-
ous components of the budget should be weighted to reflect their differ-
26
Okun and Teeters, op. cit., pp. 90-96.

ing impacts (if any) on the level of aggregate demand. The preceding
discussion has been based on the implicit assumption that all compo-
nents of revenue and expenditure should be given an equal, although
opposite in sign, weighting, whereas in practice it may well be more
realistic to assign different weights to various components of revenue
and expenditure if the first round or total effects on the level of aggre-
gate demand of different budgets are the subject of comparison. Never-
theless, the merits of the use of a weighted full employment surplus
vis-à-vis that of the unweighted surplus concept will not be examined
here, since the relevant considerations are the same ones that exist for
comparing the relative merits of the use of the weighted and unweighted
actual budget surplus for fiscal analysis.27 The statements made with
respect to the comparison of the actual budget surplus with the full
employment surplus are, with one exception, equally valid for com-
parisons of the weighted full employment surplus with the use of the
weighted actual surplus as summary indicators. The exception is that
the conditions previously outlined, under which the full employment
surplus is superior to the actual surplus as an indicator of fiscal policy
in a dynamic context, are no longer valid when weights of different
size are applied to separate components of revenue and expenditure.
IV. The Use of the Full Employment Budget Surplus

Concept as a Rule for Budgetary Policy
In theory, the full employment budget surplus indicates the differences
between government revenue and government expenditure at the full
employment level of income. The consistency of the full employment
surplus associated with any budget with the estimated full employment
level of private savings and private investment (including net foreign
investment) for maintaining an equilibrium full employment level of
income can be evaluated. For any given level of private savings and
private investment at full employment determined on the basis of chosen
monetary assumptions, the achievement of a full employment surplus
consistent with the fulfillment of the equilibrium conditions necessary
27
Okun and Teeters have reviewed the case for weighting the full employment
surplus in the United States at some length, ibid., pp. 84-88. See also Edward
M. Grämlich, "The Behavior and Adequacy of the United States Federal Budget,
1952-1964," Yale Economic Essays, Vol. 6 (Spring 1966), pp. 99-159.

to achieve full employment cannot by itself ensure that the full employ-
ment level of income will, in fact, be achieved. For, the automatic
stabilizers implicit in the given budget structure may be insufficient to
ensure the desired correction in the level of private savings and invest-
ment to their respective full employment levels, which is required to
achieve full employment. This is not to deny that appropriate adjust-
ments in monetary policy could result in the achievement of full em-
ployment when no changes in budgetary policy are made, but this would
imply an exclusive reliance on automatic stabilizers for fiscal policy
purposes.
The rule espoused by the present U.S. Administration that budgetary
policy be designed to ensure a balanced budget at full employment is
justified on the grounds both that it provides a guide for long-run
expenditure policy by imposing a discipline of an upper limit on outlays
and that it helps to stabilize the level of income by not increasing the
level of expenditure above the long-term trend rate in periods of boom
and by not reducing it below the trend rate in periods of slack.28 Apart
from the practical difficulties inherent in calculating the trend rate of
growth of government revenues at a hypothetical full employment level
of income, there would appear to be no major obstacles for a govern-
ment to base its longer-term expenditure policy on the calculated level
of full employment income.29 The pursuit of such a policy, however,
does imply that variations in the rate of growth of expenditure from
the trend rate of growth of expenditure can occur only if accompanied
by discretionary changes in taxation with revenue yields at the full
employment level of income equal to the absolute size of the faster, or
slower, than trend growth in expenditure. A rigid application of the
balanced-budget-at-full-employment rule would then necessitate a dis-
cretionary fiscal policy that could vary expenditure and full employment
revenues by equal amounts. Thus, unless the balanced budget multiplier
is quantitatively significant or unless the full employment estimate of the
revenue yield of discretionary tax policy differs substantially from the
actual revenue yield of these measures in a given period, the rigid
application of the balanced-budget-at-full-employment rule severely
constrains the use of discretionary fiscal policy for stabilization policy in
28
See Slitor, op. cit., pp. 4-5.
29
The Netherlands has based its expenditure decisions on such a rule since
early in the 1960s. See Daryl A. Dixon, "Techniques of Fiscal Analysis in the
Netherlands," Staff Papers, Vol. XIX (1972), pp. 615-46.

the United States. There is also the additional problem, for demand
management purposes, that a budget that is balanced at full employment
may not be consistent with maintaining an equilibrium full employment
level of income, given the savings and investment propensities in the
private sector of the economy. Unless assumptions are made that the
required equilibrium conditions are to be brought about exclusively by
monetary policy, it would not be possible except perhaps in extremely
fortunate situations to eschew the use of discretionary policy in obtain-
ing full employment.
V. Evaluation, Summary, and Conclusions

PROBLEMS OF MEASUREMENT
As mentioned previously, the full employment budget surplus as it
is defined and measured in the United States does not indicate what the
actual budget surplus would be if the level of income corresponding
to the full employment of labor were to be achieved. For, the actual
price level at the existing level of output—not an estimate of what
the price level would be at full employment—is used to convert potential
output, which is first estimated in real terms, into money terms. If the
anticipated price level used in ex ante estimates of the size of the full
employment surplus differs from the actual realized price level in the
relevant period, the ex post size of the full employment surplus will
reflect this variation in the rate of inflation as well as any discretionary
policy changes made in the ensuing period. Allowance for this possibility
would be necessary if ex ante and ex post evaluations of any given
budget are being undertaken, but apart from this the problems posed
by inflation in measuring the size of the full employment surplus are
not major ones, provided that the actual price level and not a hypo-
thetical full employment level is used for this purpose. In addition, com-
paring the size of the actual budget surplus with that of the full employ-
ment surplus is facilitated when both are determined at the same price
level.
Estimating government revenues at the assumed level of potential
output, however, is more complicated than that at the actual level
of output, because in practice it requires a determination of what the
functional shares in income would be at full employment. In this calcula-

tion, unless the actual level of income approximates the full employment
level of income, the actual or anticipated functional shares in the level
of income may not serve as an accurate guide to the likely shares at the
full employment level of income. In such circumstances, sophisticated
analysis may be necessary to determine the most likely functional dis-
tribution of income if the full employment level of income were to
be achieved, and it may well prove difficult to make informed judg-
ments of the accuracy of the calculated shares in the assumed circum-
stances. Inaccuracies in estimating the distribution of income in full
employment income will be quantitatively important when there are
considerable differences in the effective marginal rates of taxation on
the various components of income. This, for example, is true in the
United States, where company profits are subject to higher effective
rates of taxation than personal income. But, nevertheless, any such
inaccuracies will affect the absolute size of the full employment surplus
and not the relative size of a series of full employment surpluses cal-
culated under the same assumptions. Thus, the problem of accurate
revenue estimation at full employment is more relevant to uses of the
full employment surplus that concentrate on its absolute size, such as
the balanced-budget-at-full-employment rule, which is used by the
present Administration.
OVERALL EVALUATION
Any overall assessment of the full employment surplus concept as a
tool for fiscal analysis is dependent on the uses for which the concept
is considered, because the full employment surplus is not superior in all
its uses to other tools of fiscal analysis, including the actual budget
surplus. There is, however, one general feature of the full employment
surplus concept that is of particular interest and that may explain in
large part its popularity in periods of relatively high unemployment in
the United States, namely, the emphasis that it places on the shortfall
in government receipts from the level that would be obtained were
the objective of full employment of labor to be achieved. By the mere
fact that the full employment surplus exceeds the actual surplus, atten-
tion is drawn to the fact that the objective of full employment of labor
has not been achieved, and this may facilitate the pursuit of a discre-
tionary fiscal policy that is not actually destabilizing by further reducing
the level of employment. If the government's stated objective of full

employment is not fully compatible with other stated objectives, such

as the level of inflation to be tolerated and the desired balance of pay-
ments, the government may decide on occasion to modify its full
employment objective in order to concentrate on its other stated objec-
tives, and discretionary fiscal policy that serves to reduce the level
of employment may be introduced in such a situation. Be this as it
may, the relationship between the size of the full employment surplus
and the actual surplus will still emphasize the departure of actual output
from potential output, even though the government's objectives at
a given point in time need not include the immediate achievement
of potential output.30
COMPARISON WITH THE ACTUAL SURPLUS

In the United States, the full employment surplus concept has been
viewed principally as a substitute for the actual budget surplus in its
use as a measure of budget impact and a guide for budgetary policy,
and it is thus relevant to examine the merits of the concept for both
these uses. The differences in the absolute size of the full employment
surplus and the actual surplus arise for two reasons: (1) The differ-
ences in the level of revenues and expenditure that result from the
divergence in the actual level of income from potential output, both
measured at the same price level; (2) the differences in the level of
revenue collections that result from differences in the functional dis-
tribution of income at the two levels of income.
The latter difference may be important in certain circumstances if
variations in the functional distribution of income with the level of
unemployment produce substantial variations in the income elasticity
of any given revenue system over the business cycle. In such a situation,
in contrast to changes in the size of the actual deficit, changes in the
size of the full employment surplus over time will not reflect any
variations in the actual income elasticity of the revenue system over
time. The relevance of this point for policy purposes depends on
whether the full employment surplus is to be used to measure the fiscal
drag, which, in the absence of increased expenditure, will serve as an
automatic influence on the level of economic activity that makes the
30
Naturally, any redefinition of the concept of full employment as part of a
trade-off to achieve compatibility of full employment with other government
objectives would necessitate a corresponding redefinition of potential output.

attainment of full employment more difficult in periods when income

is increasing at levels of output less than potential output. For such a
purpose, fiscal policy in the given period would be more appropriately
guided by anticipated or actual fluctuations in revenue collections that
reflect actual or anticipated fluctuations in the functional distribution
of income. Thus, in this particular context, the full employment surplus
concept is subject to the disadvantage that the trend of revenues used
in its calculation may reflect the extent of any incipient fiscal drag at
any point in time less accurately than the trend in actual revenues used
in calculating the size of the actual surplus.
For other possible uses of the full employment surplus, it has been
demonstrated previously that in a dynamic context neither the full
employment surplus nor the actual surplus permits the separation of the
effects of discretionary policy action on the budget from automatic
variations in the size of revenue and expenditure.31 But, nevertheless,
under certain limiting assumptions, the full employment surplus con-
cept may permit a qualitative but not quantitative evaluation of discre-
tionary fiscal policy. This is the direct consequence of the fact that the
automatic component of the growth in revenue included in calculating
the size of full employment surplus is related directly to the assumed
normal growth in potential output over time when the productive
resources of the economy are increasing. In contrast to the actual
budget surplus when the automatic component of the growth in revenue
may be positive or negative, depending on the actual growth perform-
ance of the economy, the automatic component of the increase in
revenue included in the full employment surplus will always be positive
in magnitude. This difference permits certain limited conclusions to be
drawn about changes in the size of the full employment surplus that, in
the absence of additional information, cannot be drawn from an analysis
based on the actual surplus.32 Two important cases where it is possible
to make judgments on discretionary fiscal policy using the full employ-
ment surplus are as follows: (1) If the size of the full employment
surplus decreases from one period to the next, this indicates an expan-
sionary discretionary fiscal policy; (2) if the income elasticity of the
31
See Section III.
32
These conclusions are subject to modification if it is technically possible for
the comparison of alternative policies at the full employment level of income to
indicate different results from comparisons at other levels of income. See the
section, COMPARISON WITH THE ACTUAL SURPLUS.

revenue system is equal to or greater than unity, a decrease in the size

of the full employment surplus as a percentage of potential output over
time will also indicate an expansionary discretionary fiscal policy.
While the full employment surplus does permit the isolation of dis-
cretionary fiscal action for the purposes of ex ante budget evaluation,
its superiority over the actual surplus in this context is limited to the
advantages in avoiding the need to evaluate the effect of the discre-
tionary changes in any given budget program on the actual level of
income that is to be used for the purposes of revenue and expenditure
forecasting in the actual budget. That is to say, a comparison of two
alternative budgets using the actual surplus would necessitate the
determination of what the differing effects of these budgets would be
on the level of GNP. The use of the full employment surplus would
not entail any such calculation but, on the other hand, would permit
only a qualitative assessment of the different effects of the two budgets.
For the full employment surplus concept permits the measurement of
the quantitative size of discretionary fiscal action only at the full employ-
ment budget level of income, and this estimate, except for changes
in the level of expenditure defined to be exogenous with respect to the
level of income, will vary with the level of income at which it is
measured.
One of the objections that may be raised against the use of the full
employment surplus as a summary indicator for purposes of fiscal anal-
ysis can also be validly raised against the use of the actual surplus in
the same context. In particular, a valid objection to the use of the full
employment surplus for the ex post evaluation of discretionary fiscal
policy is that the size of this surplus will vary with the rate of inflation
and that the rate of inflation is influenced, inter alia, by discretionary
fiscal action. A similar objection to the use of the actual budget surplus
for the same purposes is equally valid, for a government may well
increase the size of the budget surplus by allowing a higher rate of infla-
tion, at least in the short run when the growth in expenditure is defined
in money and not in real terms. Thus, the criticism that the unsatis-
factory treatment of price changes is a defect of the full employment
surplus concept and may limit its usefulness in certain situations 33
is equally applicable to the use of the actual surplus in the same con-
text.
33
See Okun and Teeters, op. cit., pp. 90-96.

Regarding the use of the full employment surplus concept as a guide

to budget formulation, if the actions of governments are to be guided by
rigid rules, there will be some advantage in using the full employment
budget surplus rather than the actual budget surplus for formulating
budgetary policy. A rule that required that the actual budget be bal-
anced in a given period may demand destabilizing discretionary fiscal
action that would further reduce the level of income, whereas such an
eventuality is not possible if the objective were to balance the budget
at the full employment level of income, because the emergence of an
actual budget deficit in periods of less than full employment would not
immediately require offsetting discretionary action to balance the budget.
However, this is not to say that a rule to govern budgetary action using
the full employment surplus concept is desirable in practice or justifi-
able on theoretical grounds, from the viewpoint of undertaking effective
fiscal policy, or even determining the long-term growth of public
expenditure.
A MAJOR DISADVANTAGE
Even the strongest proponents of the use of the full employment

surplus would admit that this concept is inherently more difficult to
quantify than the actual surplus. Indeed, it was mentioned previously
that the difficulties of estimating the functional distribution of income
at full employment may subject the absolute size of any calculated full
employment surplus to some doubt, but that this complication would be
less relevant if attention were to be concentrated on the relative size
of the surplus, or changes in the size of the surplus, at different points
in time. The actual surplus, however, cannot be subject to the same
doubts on account of accuracy of measurement, at least as far as
ex post analysis is concerned. In addition, the full employment surplus
does entail considerably more computational effort than the actual
surplus, and it may be argued that the resources devoted to calculating
the size of the full employment surplus might be more efficiently applied
to the study of different means of achieving the same objective.
To take a relatively important example, if the advantage that most
influences the use of the full employment surplus in practice is its
superiority in separating discretionary fiscal action from the automatic
effects on the budget resulting from changes in the level of income, the
identification of the discretionary component of the change in the actual

budget result may yield the same benefit with less effort. It might well
prove difficult to explain the purpose of such a dissection of the actual
surplus (or of changes in the size of the surplus) to laymen, but the
information provided would, in fact, be superior to the data that could
be gathered from the use of the full employment surplus alone.

SUMMARIES
Financial Integration and Interest Rate Linkages in the

Industrial Countries, 1958-711
Victor Argy and Zoran Hodjera
This article focuses on theoretical and policy issues posed by financial

integration among industrial countries since the mid-1950s. The prob-
lems of measuring international financial integration and of estimating
its trend over the years are also explored.
The role of the Euro-dollar market, as a major financial intermediary
that channels short-term funds between the money markets of the indus-
trial countries, is examined first. An econometric analysis of factors
influencing the Euro-dollar interest rate indicates that its movements are
dominated by conditions in the United States and suggests a high degree
of integration between the U. S. and Euro-dollar capital markets. How-
ever, the results also lend some support to the view that the Euro-dollar
rate is influenced by conditions in Europe, particularly by bursts of
speculation.
In order to explore the relationship between financial integration and
the harmonization of interest rates, the article examines the effects of
financial integration on the volatility in reserves over the country's busi-
ness cycle. Initially, at the low level of integration, increases in financial
integration tend to be stabilizing to reserves, since capital movements
tend to offset trends in the current account. Beyond a point, however,
integration will destabilize reserves over a cycle. In a fixed exchange
rate regime, countries will then be faced with difficult policy options.
They may continue to pursue independent interest rate policies by steri-
lizing the liquidity effects of reserve movements or by increasing their
intervention in capital movements. Since neither sterilization policies
nor intervention in capital movements is likely to be entirely successful,
highly integrated economies might also tend to determine their interest
rates partly in the light of interest rate developments overseas.
Among alternative ways to evaluate the degree of financial integration
and possible changes over time, the article examines the responsiveness
1
The complete text of this article begins on page 1.
227

of the premium and discount in the forward market to changes in interest

differentials. With integrated money markets, a rise in the interest differ-
ential in a country's favor will induce the movement of arbitrage funds,
which will have the effect of increasing (reducing) the forward discount
(premium) on the domestic currency. The greater this sensitivity, the
more integrated may be the economy; also, changes in the degree of
sensitivity may reflect changes in integration over time. Statistical tests
of six industrial countries suggested a high degree of financial integration
during the 1960s. There was also some evidence of possible increase
in integration in Belgium and France between 1960 and 1965, but in-
creased resort to controls of capital movements in the latter part of the
1960s may have arrested this process in several countries and may have
even reversed it in others.
Main Features of the Employment Problem in

Developing Countries1
Avinash Bhagwat
The worsening of the employment problem in the developing coun-

tries despite their good growth performance has become a cause for
concern. The problem arises from both the absolute size and the growth
rate of their labor force. In 1970 about two thirds of the world's labor
force lived in the developing countries, and the projected increase in
the 1970s was about half of the total labor force in the developed coun-
tries in 1970. The burden of productively absorbing such a fast-
growing labor force into relatively weak economies can be an unbearable
one.
The concept of unemployment used in the developed countries can
describe only a part of the employment problem in the developing
countries. The main reason for this is the predominance of household
enterprises and nonwage employment in the developing countries, par-
ticularly in their rural/traditional sectors. Moreover, the lack of pro-
ductive employment opportunities even in urban areas is often reflected
in long hours at unproductive work to eke out a living. Hence, the
1

SUMMARIES 229
employment problem in the developing countries has two aspects: open

unemployment (mainly an urban problem) and disguised unemploy-
ment.
Even on open unemployment, the available quantitative information
in the developing countries is rather limited and only some tentative
observations can be ventured. First, evidence is insufficient to establish
that the rates of open unemployment in the developing countries have
been rising. Second, these rates are high enough to be a matter for serious
concern. Third, the urban unemployment rates generally range consid-
erably higher than the country-wide rates. Fourth, the gap in the rate
of real earnings between the urban/modern and the rural/traditional
sectors plays an important role in determining the rate of open urban
unemployment.
It is necessary to define disguised unemployment. From the different
meanings given this term in the past, the so-called low-income, or
productivity, approach appears to be most useful operationally. It would
define the disguised unemployed as those whose annual real incomes
are below a certain bench mark, which would be set in each country
in accordance with its economic and social conditions. The acceptance
of this income approach to the definition of disguised unemployment
shifts the emphasis from the creation of jobs as such to the improvement
in productivity, and thus in real earnings, on the lower rungs of income
distribution, a shift that is both appropriate and desirable.
This survey of employment problems in the developing countries
suggests the need for a three-pronged approach to ameliorative policies.
Effective population policies are needed to limit the growth of the
labor force; urban open unemployment must be tackled not only by
job creation in the modern sector but also by measures to regulate the
"urban drift" of the population; and high priority must be given to
measures for increasing the productivity of labor in agriculture and
other ancillary activities in the traditional sector.

Analysis of Proposals for Using Objective Indicators as

a Guide to Exchange Rate Changes1
Trevor G. Underwood
This article surveys various proposals that have been made for intro-
ducing objective or quantitative criteria for guiding exchange rate
adjustment as a supplement to the judgmental concept of fundamental
disequilibrium incorporated in the Articles of Agreement of the Inter-
national Monetary Fund (IMF). Two main categories of proposal are
identified.
First, there are those proposals in which the indicator is employed
to trigger international consultations as to whether a situation of funda-
mental disequilibrium does in fact exist. Sizable parity adjustments are
still envisaged, and they are to continue to be restricted to situations
of identifiable fundamental disequilibrium. The main modification to
the existing Articles of Agreement is to cease to leave the initiative for
proposing a change in par value to the country with an emerging pay-
ments imbalance. The foremost proposal of this type was made by
Lord Keynes when the IMF was established.
The second category of proposal reflects a greater concern with the
problem of making the criteria for still sizable parity changes more
objective and, consequently, the change more predictable in a situation
of considerable short-term international mobility of capital. These are
the "crawling peg" proposals, in which the rate of crawl is guided by
an objective indicator, such as the level of reserves or the exchange
rate, rather than being predetermined or totally discretionary. Here, the
main purpose is to introduce a greater measure of exchange rate flexi-
bility, while constraining the maximum rate of change by this means
within a safety margin of a few percentage points per annum. Objective
indicators are used partly to stimulate parity changes where these are
appropriate and partly as a safeguard against competitive manipulation
of exchange rates. Although the essential feature of declared par values
of the Bretton Woods system is retained and the need for occasional
parity changes of substantial size may remain, parity changes no longer
would be restricted solely to situations of fundamental disequilibrium
and sometimes would be in the wrong direction, thus needing to be
reversed later.
1

SUMMARIES 231
The analysis concentrates on this latter, more radical, group of pro-

posals and in particular on the pros and cons of using exchange market
indicators, such as the level of reserves or the exchange rate, in guiding
the gradual adjustment of par values.
The Brazilian State Value-Added Tax1

Michèle Guerard
In 1967 the Brazilian states abolished the heterogeneous turnover
taxes that they had levied for 30 years and replaced them with a unified
sales tax of the value-added type. The reform was designed to overcome
the defects of turnover taxation and to secure a greater degree of tax
coordination among the states of the Federation. The Brazilian expe-
rience is of interest both as a case study of value-added taxation in a
developing country and as an illustration of the problems posed by
interstate tax coordination in the special setting of a federation charac-
terized by huge regional disparities.
After a brief survey of the overall Brazilian fiscal structure, and a
review of the historical background of the state tax reform, the study
concentrates on an analysis of the technical features of the Brazilian
state value-added tax (VAT), including scope, taxable base, rates, and
exemptions; the treatment of agriculture, investment, and exports; and
the operation of the tax-credit mechanism. This is followed by a quanti-
tative estimate of the base of the tax and its sectoral allocation. Finally,
the differential geographical impact of the tax and the interstate distri-
bution of revenue are examined, in an effort to highlight the problem
of regional fiscal imbalance, which constitutes one of the major issues
of Brazilian federalism.
The Brazilian state VAT is found to be less universal in coverage
than the VAT that has been adopted in Western European countries.
Services are excluded from its scope, along with a number of special
sectors, such as construction and electric power. The tax is nevertheless
a uniform, broad-based levy that succeeds in reaching, directly or in-
directly, a considerable part of the value added by the Brazilian
1

economy, and apparently involves only a small amount of double taxa-

tion. The rate of tax is the same for all commodities, and exemptions
have been kept to a minimum. The administration of the tax does not
appear to be unusually burdensome, a simplified estimate system being
used to assess the tax on small retailers. A large proportion of the
total VAT revenue is collected at the manufacturing stage.
Serious difficulties have been associated with the use of the tax at
the state level within a federal framework. The tax has a common struc-
ture in all the states. The Federal Government prescribes most of its
basic features, leaving relatively little scope for interstate variations in
tax rates and exemptions that tend to disturb competitive equilibrium
and lead to the dislocation of production and trade patterns. Yet, it has
proved difficult to enforce a uniform system in all the states because of
the marked regional economic differences. The tax has also tended to
accentuate rather than to alleviate existing fiscal disequilibria. The use
of origin rules in interstate transactions has been responsible for the
heavy weighting in distributing the tax base in favor of the more devel-
oped states. The magnitude of the dilemma of interstate coordination is
intensified by the lack of alternative sources of state finance that could
be manipulated more flexibly on a local or regional basis.
Incomes Policy in Austria 1

Erich Spitäller
Most industrial countries have recently found inflation to be more

intractable than had generally been anticipated, and conviction has been
growing that the authorities will have to supplement financial policies
with more direct restraint on rises in wages and prices. Hence, the
current interest in countries that have been pursuing incomes policies.
This paper examines the experience that Austria has had with such
policies. First, the paper considers some of the fundamental aspects of
Austrian incomes policies and summarizes wage and price policies in the
period between the end of World War II and the establishment of the
1

SUMMARIES 233
current system of controls. Subsequently, it describes the mechanism

of current incomes policies and the mixture of voluntary restraint and
compulsion that underlies its operation.
The paper evaluates the effectiveness of Austrian incomes policies
and finds that they may have been instrumental in the maintenance of
good industrial relations and may have helped to avoid the disruption
of growth and stability that is caused by strikes. In addition, the wage
and price settlements effected under the system of controls may have
restrained inflation, judging by the favorable developments in unit labor
costs and the trade-off between unemployment and inflation in Austria
compared with other industrial countries. At least in part, restraint
appears to have been accomplished through the timing of settlements,
involving a delay in wage and price increases and thus a reduction in
inflationary pressures. The Austrian experience illustrates some basic
interrelated conditions that may be conducive to the success of incomes
policies: (1) comprehensive organizations of employers and employees;
(2) highly centralized policy formation and execution in these organiza-
tions; (3) close association between the organizations and the adminis-
trative and political establishment; and (4) the willingness of the
organizations to compromise.
The Full Employment Budget Surplus Concept as a

Tool of Fiscal Analysis in the United States1
Daryl A. Dixon
The paper describes the concept of the full employment surplus and
its method of estimation in the United States and analyzes ( 1 ) its gen-
eral use as a summary measure of budget impact for purposes of policy
evaluation and (2) its use in rules that govern the formulation of budg-
etary policy. The principal emphasis is on the first use of the concept,
but the stabilization policy implications of its use to formulate budgetary
policy are also described. In the analysis, wherever relevant, compari-
sons are made with the use of the actual budget surplus in the same
context.
1

The full employment budget surplus is an estimate of what the budget

result would be with a given expenditure and taxation program if the
economy were at the full employment level of output. It is clearly a
hypothetical construct designed to remove the effects of fluctuations in
the actual level of economic activity from the budget result and to permit
the identification of changes in government discretionary policy. One
conclusion of the paper is that, subject to certain limitations, the full
employment surplus is superior to the actual surplus for purposes of
fiscal analysis in a static context. But in a dynamic context the superior-
ity of the full employment surplus is less apparent except in certain
situations described in the paper. In general, the defects associated with
using the actual budget surplus to evaluate discretionary fiscal action,
such as the possible variation of the size of the surplus as the result of
discretionary action, are also relevant to the use of the full employment
surplus in a dynamic setting.
The full employment surplus concept is presently used in the
United States to determine the size of government expenditure to be
included in a given budget. The stabilization policy implications of this
use of the concept are favorable for achieving full employment com-
pared with the use of the actual budget surplus in the same context.
However, the use of the full employment surplus in such a way does
not guarantee the achievement of the full employment objective.

RESUMES
Intégration financière et relations entre les taux d'intérêt

des pays industriels, 1958-711
Victor Argy et Zoran Hodjera
Le présent article porte principalement sur les questions théoriques

et de politiques posées par l'intégration financière entre pays industriels
depuis le milieu des années cinquante; il examine en même temps
les difficultés rencontrées pour mesurer l'intégration financière inter-
nationale et estimer ses tendances possibles au cours des années.
Les auteurs étudient d'abord le rôle du marché de l'Euro-dollar, inter-
médiaire financier d'une importance majeure qui alimente en fonds
à court terme les marchés monétaires des pays industriels. Il ressort
de l'analyse économétrique des facteurs qui ont une incidence sur le
taux d'intérêt de l'Euro-dollar que les mouvements de ce taux sont
influencés par la situation aux Etats-Unis — ce qui témoigne d'un degré
élevé d'intégration entre les marchés financiers des Etats-Unis et de
l'Euro-dollar. Cependant, les conclusions semblent montrer aussi que
le taux de l'Euro-dollar est influencé par la situation économique en
Europe, en particulier par les poussées de spéculation.
Afin d'étudier le rapport qui existe entre l'intégration financière
et l'harmonisation des taux d'intérêt, les auteurs examinent les effets
de l'intégration financière sur l'instabilité des réserves au cours du
cycle conjoncturel. Au début, lorsque le niveau d'intégration est peu
élevé, tout accroissement de l'intégration financière tend à avoir un
effet stabilisateur sur les réserves, étant donné que les mouvements de
capitaux tendent à compenser les tendances du compte courant. Mais
au-delà d'un certain point, l'intégration aura un effet déséquilibrant
sur les réserves au cours du cycle. Dans un régime de taux de change
fixes, les pays se trouveront alors face à de difficiles options. Ils
pourront continuer à appliquer des politiques indépendantes en matière
de taux d'intérêt en stérilisant les effets de liquidité des mouvements
1
Le texte intégral de cet article en anglais commence à la page 1.
235

des réserves ou en augmentant leur intervention dans les mouvements de

capitaux. Etant donné que, fort probablement, ni les politiques de stéri-
lisation ni l'intervention dans les mouvements de capitaux ne donneront
entièrement satisfaction, des économies fortement intégrées pourraient
aussi avoir tendance à déterminer leurs taux d'intérêt en fonction de
l'évolution des taux d'intérêt à l'étranger.
Parmi les diverses manières qui s'offrent d'évaluer le degré d'inté-
gration financière et les changements susceptibles de se produire au cours
du temps, les auteurs examinent la mesure dans laquelle le report et le
déport sur le marché à terme réagissent aux changements intervenant
dans les écarts entre les taux d'intérêt. Dans le cas de marchés monétaires
intégrés, une augmentation de l'écart entre les taux d'intérêt en faveur
d'un pays amorcera le mouvement de fonds d'arbitrage, ce qui aura pour
effet d'accroître (de réduire) le déport (report) à terme sur la monnaie
nationale. Plus cette sensibilité est grande, plus l'économie sera intégrée;
de même, tous changements dans le degré de sensibilité pourront traduire
des changements se produisant dans l'intégration au cours du temps. Il
ressort de tests statistiques effectués sur pays industrialisés que l'intégra-
tion financière a atteint un degré élevé pendant les années 60. Ces tests
indiquent aussi un accroissement possible de l'intégration en Belgique
et en France entre 1960 et 1965, mais il se peut que le recours accru
à des contrôles sur les mouvements de capitaux pendant la dernière
partie des années soixante ait mis fin à ce processus dans plusieurs pays
et l'ait renversé dans d'autres.
Le problème de l'emploi dans les pays en voie de

développement : ses principales caractéristiques *
Avinash Bhagwat
Malgré un taux de croissance relativement élevé, les pays en voie

de développement voient avec inquiétude s'aggraver leur problème
de l'emploi. L'existence de ce problème provient du chiffre élevé de la
population active et de son taux d'accroissement. En 1970, les deux
1

RESUMES 237
tiers environ de la population active du monde vivaient dans les pays

en voie de développement et on estimait que son augmentation pendant
les années 1970 représenterait à peu près la moitié du total de la
main-d'œuvre des pays développés en 1970. Aussi, la tâche qui consiste
pour des économies relativement faibles à faire absorber par les secteurs
productifs une main-d'œuvre dont le nombre croît rapidement, peut
devenir intolérable.
La notion du chômage telle qu'elle est utilisée dans les pays dévelop-
pés n'explique qu'en partie le problème de l'emploi auquel se heurtent
les pays en voie de développement, et ceci principalement en raison du
grand nombre d'entreprises familiales et de non-salariés, en particulier
dans les secteurs ruraux et traditionnels. En outre, le manque de possi-
bilités d'emploi productif, même dans les régions urbaines, se traduit
souvent par de longues heures de travail peu productif passées à trouver
une maigre subsistance. C'est pourquoi, le problème de l'emploi dans
les pays en voie de développement se présente sous deux aspects : le
chômage déclaré (essentiellement un problème urbain) et le chômage
déguisé.
Même sur le chômage déclaré, les données quantitatives dont dis-
posent les pays en voie de développement sont relativement limitées,
c'est pourquoi les remarques que l'on peut faire sont d'un fondement
quelque peu incertain. Premièrement, on n'a pas suffisamment de
preuves pour affirmer que les taux du chômage déclaré dans les pays
en voie de développement ont augmenté. Deuxièmement, ces taux sont
suffisamment élevés pour soulever de sérieuses inquiétudes. Troisième-
ment, les taux de chômage dans les régions urbaines sont en général
beaucoup plus élevés que sur le plan national. Quatrièmement, l'écart
entre le taux de revenu réel dans les secteurs urbains et modernes et
dans les secteurs ruraux et traditionnels influe de façon décisive sur le
taux de chômage urbain déclaré.
Une définition du chômage déguisé s'impose. Des diverses acceptions
données à cette expression dans le passé, c'est la méthode appelée
méthode des faibles revenus ou de la productivité qui semble sur le
plan opérationnel la plus utile. Elle englobe dans le chômage déguisé
ceux dont le revenu réel par an est inférieur à un certain montant
déterminé dans chaque pays en fonction de ses conditions économiques
et sociales. Si l'on accepte cette définition du chômage déguisé, ce n'est
plus à la création d'emplois en soi que l'on accorde de l'importance,
mais bien à l'accroissement de la productivité et donc du salaire réel

des groupes à revenus les plus faibles; cette modification des priorités
semble à la fois appropriée et souhaitable.
De cette étude des problèmes de l'emploi dans les pays en voie de
développement ressort la nécessité d'attaquer le problème de l'emploi
sur trois fronts : il faut d'abord appliquer une politique démographique
efficace pour limiter l'accroissement de la main-d'œuvre; il faut ensuite
aborder le problème du chômage urbain déclaré, non seulement en
créant des emplois dans le secteur moderne, mais également en prenant
des mesures visant à réglementer l'exode rural de la population; il
faut enfin donner une priorité élevée aux mesures destinées à
accroître la productivité de la main-d'œuvre dans l'agriculture et autres
activités connexes du secteur traditionnel.
Examen des propositions concernant l'emploi d'indicateurs

objectifs comme critères pour les1 modifications des
taux de change
Trevor G. Underwood
Le présent article examine les diverses propositions faites pour

adopter des critères objectifs ou quantitatifs permettant de modifier les
taux de change, critères qui viendraient s'ajouter au concept de
déséquilibre fondamental énoncé dans les Statuts du Fonds Monétaire
International (FMI). Deux grandes catégories de propositions sont
analysées ici.
Il y a, d'une part, celles qui proposent d'utiliser un indicateur pour
déclencher un processus de consultations internationales visant à
établir s'il existe réellement un déséquilibre fondamental. Ces propo-
sitions continuent d'envisager des ajustements de parité considérables
qui ne devront toujours s'appliquer qu'aux situations où l'on peut
établir l'existence d'un déséquilibre fondamental. La principale modifica-
tion aux Statuts actuels du Fonds consiste à ne plus laisser au pays où
commence à se manifester un déséquilibre de paiements l'initiative de
proposer la modification de son pair. C'est Keynes qui le premier fit
1

RESUMES 239
une proposition de ce genre lors des discussions qui portèrent création

du FMI.
La seconde catégorie de propositions témoigne du désir d'augmenter
l'objectivité des critères permettant d'effectuer encore de considérables
modifications de parité et, par conséquent, de rendre ces modifications
plus prévisibles lorsque se produisent d'importants mouvements de
capitaux internationaux à court terme. Ces propositions visent à
établir une "parité mobile" dans laquelle le taux de mobilité est fonc-
tion d'un indicateur objectif tel que le niveau des réserves ou du taux
de change et non pas déterminé à l'avance ou laissé complètement à
la discrétion des intéressés. Le principal objet de cette proposition est
de rendre les taux de change plus souples tout en limitant ainsi le taux
de change maximum à l'intérieur d'une marge de sécurité de quelques
points de pourcentage par an. Les indicateurs objectifs sont utilisés en
partie pour stimuler des modifications de parité là où elles s'imposent
et en partie comme garantie contre la course à la dévaluation. Bien que
cette proposition — et c'est là une caractéristique essentielle du système
de Bretton Woods — fasse encore obligation aux membres de déclarer
un pair et leur permette toujours de le modifier dans une mesure con-
sidérable, elle ne limite plus les modifications de parité aux situations où
existe un déséquilibre fondamental et conçoit même l'adoption de modi-
fications contraires, exigeant une opération inverse à une date ultérieure.
L'analyse porte sur ce dernier groupe de propositions, qui sont d'un
caractère plus radical, et en particulier sur les avantages et inconvénients
d'utiliser des indicateurs relatifs au marché des changes comme le niveau
des réserves ou du taux de change, pour guider l'ajustement progressif
des pairs.
La taxe sur la valeur ajoutée dans les Etats du Brésil1

Michèle Guerard
En 1967, les Etats du Brésil abolissaient les impôts hétérogènes sur le

chiffre d'affaires qu'ils prélevaient depuis 30 ans pour les remplacer par
un impôt commun sur les ventes, du type taxe sur la valeur adjoutée.
1

Cette mesure visait à éliminer les inconvénients de l'imposition sur le

chiffre d'affaires et à assurer une meilleure coordination fiscale entre les
Etats de la Fédération. Le cas du Brésil a le double intérêt de fournir un
exemple d'utilisation de la TVA dans un pays en voie de développement
et d'illustrer les difficultés de la coordination fiscale entre Etats dans
le cadre particulier d'une Fédération accusant d'énormes disparités
régionales.
Après avoir fait l'esquisse de la structure fiscale du Brésil et présenté
le contexte historique de la réforme, l'auteur s'attache à analyser les
caractéristiques techniques de la TVA adoptée au Brésil et: notamment
sa portée, son assiette, ses taux et ses exonérations; le régime accordé à
l'agriculture, aux investissements et aux exportations ainsi que le régime
des déductions d'impôt. Il procède ensuite à une estimation quantitative
de l'assiette de l'impôt et de sa répartition entre les divers secteurs. Pour
terminer, l'auteur examine la répartition géographique de l'assiette et la
distribution entre les Etats des recettes de l'impôt, afin de mettre en
lumière le déséquilibre fiscal régional qui constitue un des principaux
problèmes du fédéralisme brésilien.
L'auteur constate que le champ d'application de la TVA brésilienne
n'est pas aussi vaste que celui de la TVA adoptée par les pays de
l'Europe occidentale puisque les services en sont exemptés ainsi qu'un
certain nombre de secteurs particuliers, comme la construction et l'élec-
tricité. La TVA brésilienne est néanmoins un impôt uniforme et général
qui parvient à atteindre, directement ou indirectement, une grande partie
de la valeur ajoutée par l'économie brésilienne; en outre, elle ne semble
entraîner que dans une faible mesure une double imposition. Le taux de
la taxe est le même pour tous les produits et le nombre des exonérations
limité au minimum. L'administration de la taxe ne semble pas trop
difficile, un système d'estimation simplifié étant utilisé pour déterminer
le montant dû par les petits détaillants. Une grande partie des recettes de
la TVA est perçue au stade de la production.
Dans une fédération, l'utilisation de la TVA au niveau des Etats
membres soulève de sérieuses difficultés. La taxe a une structure com-
mune dans tous les Etats. Le Gouvernement fédéral fixe la plupart de
ses caractéristiques de base, limitant ainsi nettement les possibilités de
variations entre Etats des taux et des exonérations — variations qui ris-
queraient de perturber l'équilibre concurrentiel et de provoquer un bou-
leversement des structures de la production et des échanges. Il s'est
toutefois avéré difficile d'appliquer un système uniforme dans tous les

RESUMES 241
Etats car ceux-ci présentent de fortes disparités économiques. En outre,

la taxe a plutôt tendance à aggraver qu'à atténuer les déséquilibres fis-
caux existants. Le fait que les transactions entre Etats sont imposées
en fonction de la provenance des produits entraîne une répartition de
l'assiette imposable nettement favorable aux Etats les plus développés
du pays. Le dilemme que pose la coordination entre Etats prend une
ampleur d'autant plus grande du fait que ceux-ci ne disposent pas
d'autres ressources fiscales susceptibles d'être manipulées de façon plus
souple à l'échelle locale ou régionale.
La politique des revenus en Autriche 1

Erich Spitäller
La plupart des pays industriels ont récemment trouvé l'inflation plus

difficile à maîtriser qu'il n'avait été prévu en général. On s'est convaincu
de plus en plus que les pouvoirs publics devront doubler leur politique
financière d'une action plus directe destinée à entraver la hausse des
prix et des salaires. C'est ce qui explique l'intérêt qui se manifeste à
l'heure actuelle dans les pays qui ont adopté une politique des revenus.
La présente étude examine l'expérience qu'a faite l'Autriche. Elle traite
d'abord des aspects fondamentaux de la politique des revenus en
Autriche et résume les politiques qui ont été suivies en matière de
salaires et de prix entre la période postérieure à la Deuxième Guerre
mondiale et l'établissement du système de contrôle actuellement en
place. L'étude décrit ensuite le mécanisme des politiques des revenus
présentement appliquées et le dosage de restriction volontaire et de
contrainte que comporte son fonctionnement.
L'étude évalue l'efficacité de la politique des revenus en Autriche
et elle constate que la politique des revenus a sans doute contribué au
maintien de bonnes relations entre employeurs et salariés dans l'industrie
et permis d'éviter l'interruption de la croissance et l'instabilité qu'entraî-
nent les grèves. Au surplus, il se peut que les arrangements en matière
de salaires et de prix conclus dans le système de contrôle aient restreint
l'inflation, à en juger par l'évolution favorable des coûts de main-d'œuvre
1

unitaires et le compromis entre le chômage et l'inflation en Autriche par

comparaison avec d'autres pays industriels. Il semble que le freinage
ait été obtenu au moins en partie par le calendrier des règlements, c'est-
à-dire en différant les hausses des salaires et des prix et en réduisant ainsi
les poussées inflationnistes. L'expérience autrichienne montre bien que
certaines conditions fondamentales sont favorables au succès d'une
politique des revenus : il est souhaitable 1 ) qu'il existe des groupements
d'employeurs et de salariés ayant une large base; 2) que l'élaboration
de la politique et son exécution au sein de ces groupements soient forte-
ment centralisées; 3) que les groupements professionnels et les institu-
tions administratives et politiques travaillent en étroite coopération;
et, enfin, 4) que ces groupements aient la volonté de se faire mutuelle-
ment des concessions.
L'excédent budgétaire de plein emploi, instrument de

l'analyse budgétaire aux Etats-Unis1
Daryl A. Dixon
Dans ce document l'auteur examine le concept d'excédent de plein

emploi et la méthode utilisée aux Etats-Unis pour l'estimer, puis il
analyse 1) son utilisation générale en tant que mesure sommaire de
l'incidence budgétaire aux fins de l'évaluation de la politique économi-
que, et 2) son utilisation dans les directives qui régissent la formulation
de la politique budgétaire. L'accent est mis principalement sur la pre-
mière utilisation de ce concept mais l'auteur décrit également les implica-
tions pour la politique de stabilisation qui résultent de son emploi dans
l'établissement de la politique budgétaire. Au cours de l'analyse, des
comparaisons sont effectuées lorsqu'il y a lieu avec l'utilisation dans le
même contexte de l'excédent budgétaire réel.
L'excédent budgétaire de plein emploi est une estimation des résultats
budgétaires qui seraient obtenus en appliquant un programme de dépen-
ses et d'imposition donné, si l'économie se trouvait au niveau de pro-
duction de plein emploi. C'est là bien entendu une conception théorique
destinée à faire disparaître des résultats budgétaires les effets des fluc-
1

RESUMES 243
tuations du niveau effectif de l'activité économique, et à permettre

d'identifier l'incidence des modifications de la politique autonome du
gouvernement. L'auteur conclut notamment que l'excédent de plein
emploi donne dans certaines limites de meilleurs résultats que l'excédent
réel lorsqu'on effectue une analyse budgétaire statique. Mais dans une
analyse dynamique, la supériorité de l'excédent de plein emploi est
moins évidente, sauf dans certaines situations décrites par l'auteur. En
général, les difficultés liées à l'utilisation de l'excédent budgétaire réel
pour évaluer les mesures budgétaires autonomes, par exemple les varia-
tions éventuelles du montant de l'excédent occasionnées par ces mesures,
surgissent également lorsque l'on a recours, aux fins de l'analyse dynami-
que et dans le même contexte, à l'excédent de plein emploi.
Le concept d'excédent de plein emploi est actuellement utilisé aux
Etats-Unis pour déterminer le montant des dépenses publiques à inclure
dans un budget donné. Les implications pour la politique de stabilisation
qui résultent de l'utilisation de ce concept permettent de se rapprocher
davantage du plein emploi que si l'on utilise l'excédent budgétaire réel
aux mêmes fins. Toutefois, une telle utilisation de l'excédent de
plein emploi ne garantit pas que l'on atteindra l'objectif du plein emploi.

RESÚMENES
Integración financiera y relaciones entre los tipos de interés

en los países industriales, 195 8-711
Victor Argy y Zoran Hodjera
Este artículo se concentra en las cuestiones de teoría y de política

planteadas por la integración financiera entre los países industriales
desde mediados del decenio de 1950. Se examinan también los proble-
mas de medición de la integración financiera internacional y los de esti-
mación de su tendencia a lo largo de los años.
En primer lugar se examina la función del mercado del eurodólar
como uno de los intermediarios principales para canalizar fondos a corto
plazo entre los mercados monetarios de los países industriales. Un
análisis econométrico de los factores que influyen en el tipo de interés
del eurodólar indica que sus variaciones vienen dominadas por las condi-
ciones en Estados Unidos y sugiere la existencia de un alto grado de
integración entre el mercado de capitales de Estados Unidos y del euro-
dólar. No obstante, los resultados apoyan también la idea de que el tipo
de interés del eurodólar está influido también por las condiciones en
Europa, en particular los brotes de especulación.
Con el objeto de estudiar la relación entre la integración financiera y
la armonización de los tipos de interés, se examinan en este trabajo las
repercusiones de la integración financiera en cuanto a la volatilidad de
las reservas a lo largo del ciclo económico de un país. Al principio, con
un bajo grado de integración, los aumentos de integración financiera
tienden a estabilizar las reservas, ya que los movimientos de capital
tienden a contrapesar las tendencias de la cuenta corriente. Sin embargo,
pasado cierto punto, la integración desestabilizará las reservas a lo largo
de un ciclo. En un régimen de tipos de cambio fijos, los países se
enfrentarían con difíciles opciones de política. Pueden continuar la
aplicación de políticas independientes de tipos de interés, esterilizando
los efectos de liquidez de las variaciones de las reservas, o interviniendo
en mayor grado en los movimientos de capital. Como no es probable
1
El texto completo en inglés de este artículo comienza en la página 1.
244

RESÚMENES 245
que las medidas de esterilización ni la intervención en los movimientos

de capital tengan completo éxito, las economías muy integradas podrían
también tender a fijar sus tipos de interés, en parte a la luz de la evolu-
ción de los mismos en el exterior.
Entre distintos medios de evaluar el grado de integración financiera y
las posibles variaciones con el tiempo, se examina en este trabajo la
sensibilidad de las primas y los descuentos en el mercado a término ante
las variaciones de las diferencias entre tipos de interés. De haber mer-
cados monetarios integrados, un aumento en la diferencia entre los tipos
de interés a favor de un país pondrá en movimiento fondos de arbitraje,
cuyo efecto será elevar (reducir) el descuento (prima) a término para
la moneda nacional. Cuanto mayor sea esa sensibilidad, más integrada
puede estar la economía; también las variaciones en el grado de sensi-
bilidad puede que obedezcan a variaciones de integración en el tiempo.
La verificación estadística en seis países industriales indicó un alto grado
de integración financiera en la década de 1960. También se obtuvieron
pruebas de un posible aumento de la integración en Bélgica y Francia
de 1960 a 1965; sin embargo, el mayor uso de controles a los movi-
mientos de capital en los últimos años de la década de 1960 puede que
haya detenido ese proceso en varios países, y hasta puede haber causado
un retroceso en otros países.
Principales características del problema del empleo

en los países en desarrollo1
Avinash Bhagwat
El agravamiento del problema del empleo en los países en desarrollo,

a pesar de la actuación satisfactoria de éstos en cuanto al crecimiento
económico, ha pasado a ser motivo de preocupación. El problema
proviene tanto del tamaño absoluto como de la tasa de crecimiento de
la mano de obra. En 1970, unas dos terceras partes de la fuerza laboral
mundial vivía en los países en desarrollo, y el aumento previsto en ese
grupo en las proyecciones para la década de 1970 equivale a la mitad de
la fuerza laboral total en 1970 de los países desarrollados. La carga
1

de absorber productivamente esta fuerza laboral que crece tan rápida-

mente en economías relativamente débiles puede resultar insoportable.
El concepto de desempleo que se usa en los países desarrollados sirve
para describir sólo una parte del problema del empleo en los países
en desarrollo. La principal razón de ello es que en los países en
desarrollo predominan las empresas de una unidad familiar y el empleo
no asalariado, especialmente en los sectores rurales tradicionales. Ade-
más, la falta de oportunidades de empleo productivo, aun en las zonas
urbanas, a menudo da por resultado largas horas de trabajo impro-
ductivo para ganarse la vida sea como sea. Por consiguiente, el problema
del empleo en los países en desarrollo tiene dos aspectos: el desempleo
abierto (principalmente un problema urbano) y el desempleo encu-
bierto.
Aun en el caso del desempleo abierto, la información cuantitativa
de que se dispone en los países en desarrollo es bastante limitada, y
sólo pueden aventurarse algunas observaciones tentativas. Primero, la
evidencia es insuficiente para afirmar que las tasas de desempleo
abierto han ido aumentando en los países en desarrollo. Segundo, estas
tasas son suficientemente altas como para constituir un motivo de
seria preocupación. Tercero, las tasas de desempleo urbano general-
mente se encuentran a niveles mucho más altos que las del desempleo
de todo el país. Cuarto, la diferencia de nivel de ingreso real entre
los sectores urbano/moderno y rural/tradicional desempeña una impor-
tante función en la determinación de la tasa de desempleo urbano
abierto.
Hay que definir el desempleo encubierto. De los distintos significados
que se le ha dado a esta expresión en el pasado, parece que el más
útil desde el punto de vista práctico es el método llamado de ingreso
bajo o productividad. Según este método se definiría el desempleo encu-
bierto como el de las personas cuyo ingreso real anual sea inferior a
cierto nivel establecido, que se fijaría en cada país de acuerdo con sus
condiciones económicas y sociales. Al aceptar este método del ingreso
para definir el desempleo encubierto, se pondrá menos énfasis en la crea-
ción de empleos como tal, y más en el aumento de la productividad, y
por lo tanto de los ingresos reales, en los escalones inferiores de la dis-
tribución del ingreso, cambio de enfoque que resulta apropriado y con-
veniente.
Este estudio de los problemas del empleo en los países en desarrollo
indica la necesidad de que la política destinada a introducir mejoras

RESÚMENES 247
actúe por tres frentes. Se necesitan medidas demográficas eficaces para

limitar el crecimiento de la fuerza laboral; el desempleo urbano abierto
debe atacarse no sólo mediante la creación de empleos en el sector
moderno sino también con medidas tendientes a regular el desplaza-
miento de la población hacia las ciudades; y se debe dar alta prioridad
a las medidas destinadas a elevar la productividad de la mano de obra
en la agricultura y en las otras actividades subordinadas en el sector
tradicional.
Análisis de las propuestas para utilizar indicadores

objetivos como guía en las modificaciones de los
tipos de cambio1
Trevor G. Underwood
En este artículo se examinan varias propuestas que se han hecho

para adoptar criterios objetivos o cuantitativos que sirvan de guía a los
ajustes de los tipos de cambio, como complemento del concepto de
desequilibrio fundamental incorporado, como elemento de juicio, en el
Convenio Constitutivo del Fondo Monetario Internacional. Se definen
dos categorías principales de propuestas.
Primero, propuestas con arreglo a las cuales el indicador se emplea
para iniciar consultas internacionales en las que se decida si existe de
hecho una situación de desequilibrio fundamental. Se prevén todavía
ajustes importantes de la paridad, que continuarán limitándose a situa-
ciones de desequilibrio fundamental identifiable. La principal modifica-
ción que se haría al Convenio Constitutivo actual es que la iniciativa
de proponer una modificación de la paridad ya no le correspondería al
país en el que surja un desequilibrio de pagos. La principal propuesta
en este sentido fue la presentada por Lord Keynes cuando se creó el
FMI.
La segunda categoría de propuestas refleja una mayor preocupación
con el problema de hacer más objetivos los criterios para modificaciones
aún mayores de la paridad y, en consecuencia, lograr que las modifica-
1

clones sean más previsibles en una situación de considerable movilidad

internacional del capital a corto plazo. Estas son las propuestas de
"paridad móvil", en que la tasa de movilidad se guía por un indicador
objetivo, como el nivel de las reservas o el tipo de cambio, en vez de ser
predeterminada o totalmente discrecional. A este respecto la principal
finalidad es la de introducir un grado mayor de flexibilidad cambiaría,
restringiendo al mismo tiempo la tasa máxima de variación a un margen
de seguiridad de unos pocos puntos porcentuales al año. Los indicadores
objetivos se emplean, en parte, para estimular modificaciones de la pari-
dad cuando éstas sean pertinentes y, en parte, como salvaguardia contra
la manipulación competitiva de los tipos de cambio. Aunque se retiene
la característica esencial de paridades declaradas, del sistema de Bretton
Woods, y puede seguir habiendo necesidad de hacer modificaciones
ocasionales de magnitud sustancial en la paridad, las modificaciones de
la paridad no se limitarían ya solamente a situaciones de desequilibrio
fundamental y a veces se harían en sentido erróneo, con lo cual habría
que invertirlas de sentido más tarde.
Este análisis se centra en este último grupo de propuestas más radi-
cales, y en particular en las ventajas y desventajas de utilizar los indica-
dores del mercado cambiario, tales como el nivel de reservas o el tipo de
cambio, como guía en el ajuste gradual de las paridades.
El impuesto de los estados brasileños sobre

el valor añadido1
Michèle Guerard
En 1967 los estados brasileños abolieron los diferentes impuestos

sobre el volumen de negocios que habían regido por 30 años, y los
sustituyeron por un impuesto común sobre las ventas del género valor
añadido. El objetivo de la reforma fue superar los defectos de la tribu-
tación sobre el volumen de negocios y conseguir mayor grado de coordi-
nación tributaria entre los estados de la Federación. La experiencia
brasileña reviste interés como estudio ilustrativo de la tributación sobre
el valor añadido en países en desarrollo y como ejemplo de los proble-
1

RESÚMENES 249
mas que plantea la coordinación tributaria interestatal en el marco

especial de una federación caracterizada por enormes disparidades regio-
nales.
Luego de efectuar un breve examen de la estructura fiscal brasileña
en general y de pasar revista a los antecedentes históricos de la reforma
tributaria de los estados, el estudio se concentra en el análisis de las
características técnicas del impuesto de los estados brasileños sobre
el valor añadido (ICM), su alcance, base imponible, tipos y exen-
ciones; el trato de la agricultura, la inversión y la exportación; y el
funcionamiento del mecanismo de créditos tributarios. A ello le sigue
una estimación cuantitativa de la base del impuesto y su distribución
por sectores. Finalmente se examinan las diferencias del impacto del
impuesto por zonas geográficas, y la distribución de la renta entre los
estados, tratando de poner de relieve el desequilibrio fiscal regional,
que constituye uno de los mayores problemas del régimen federal bra-
sileño.
Se llega a la conclusión de que el ICM de los estados brasileños
tiene una cobertura menos universal que el impuesto sobre el valor
añadido adoptado en los países de Europa occidental. Excluye los
servicios y diversos sectores especiales, tales como la construcción y la
energía eléctrica. No obstante, el impuesto es un gravamen uniforme,
de base amplia, que consigue incidir, directa o indirectamente, en una
parte considerable del valor añadido por la economía brasileña y parece
entrañar pocos casos de doble tributación. La tasa del impuesto es la
misma para todos los productos, y las exenciones se han reducido a un
mínimo. La administración del impuesto no parece ser excesivamente
gravosa, y se emplea un sistema simplificado de estimaciones para deter-
minar el impuesto sobre los pequeños minoristas. Una proporción con-
siderable de la renta total del ICM se recauda a nivel del fabricante.
En un sistema federal, la aplicación del impuesto a nivel de los estados
ha planteado graves problemas. El impuesto tiene una estructura común
en todos los estados. El Gobierno Federal prescribe la mayor parte de
sus caracteres básicos, dejando relativamente pocas posibilidades para
las variaciones interestatales de los tipos del impuesto y la exenciones
que tienden a alterar el equilibrio competitivo y conducen a la disloca-
ción de la estructura de la producción y el comercio. Aun así, ha
resultado difícil hacer cumplir un sistema uniforme en todos los estados
debido a las marcadas diferencias económicas regionales. El impuesto
también ha tendido a acentuar, y no a moderar, el desequilibrio fiscal

existente. El criterio de la procedencia de la mercancía aplicado en las

transacciones interestatales ha favorecido considerablemente a los estados
más desarrollados en la distribución de la base imponible. La magnitud
del problema de la coordinación interestatal se intensifica por la falta
de otras fuentes de recursos financieros de los estados que puedan
manipularse más flexiblemente a nivel local o regional.
Política de ingresos en Austria1

Erich Spitäller
La mayoría de los países industriales han comprobado en los últimos

años que el problema de la inflación es más difícil de lo que habían
previsto en general, y se ha ido llegando a la conclusión de que las auto-
ridades tendrán que complementar la política financiera con una con-
tención más directa de los precios y salarios. De ahí el interés actual en
los países que han seguido una política de ingresos. En el presente
estudio se examina la experiencia que ha tenido Austria con dichas
medidas. Primero, se analizan algunos aspectos fundamentales de la
política de ingresos de Austria y se resume la política de precios y
salarios seguida desde el fin de la Segunda Guerra Mundial hasta que
se estableció el actual sistema de controles. A continuación se describe
el mecanismo de la política actual de ingresos, y la combinación de
contención voluntaria y obligatoria en que se basa el funcionamiento
de la misma.
Se evalúa la eficacia de la política austríaca de ingresos, concluyéndose
que puede haber sido uno de los factores en el mantenimiento de las
buenas relaciones industriales y puede haber contribuido a evitar las per-
turbaciones del crecimiento y de la estabilidad originadas por huelgas.
Asimismo, las decisiones sobre precios y salarios implantadas con el
sistema de controles pueden haber contribuido a contener la inflación,
a juzgar por la marcha favorable en los costos laborales unitarios y en la
relación de correspondencia entre el desempleo y la inflación en Austria,
en comparación con otros países industriales. La contención parece
1

RESÚMENES 251
haberse logrado, al menos en parte, mediante el control de la entrada en

vigor de las decisiones sobre precios y salarios aplazando las subidas,
con lo que se reducen las presiones inflacionistas. La experiencia aus-
tríaca ilustra algunas condiciones básicas interrelacionadas, que pueden
ser conducentes al éxito de una política de ingresos : 1 ) amplias organi-
zaciones patronales y obreras, 2) un alto grado de centralización en
la formulación y ejecución de la política de dichas organizaciones,
3) estrecha relación entre éstas y las instituciones administrativas y
políticas, y 4) el que las mencionadas organizaciones hayan estado
dispuestas al compromiso.
El concepto de superávit presupuestario en pleno empleo

como instrumento de análisis fiscal en los
Estados Unidos1
Daryl A. Dixon
En este trabajo se describen el concepto del superávit en pleno empleo

y su método de estimación en los Estados Unidos, y se analizan 1 ) su
uso general para medir de forma concisa el impacto del presupuesto,
a fin de evaluar la política y 2) su uso en las directrices por las que se
rige la formulación de la política presupuestaria. Se hace hincapié en el
primer uso de este concepto, pero también se describen las repercusiones
en la política de estabilización que tiene su empleo en la formulación de
la política presupuestaria. En el análisis, y cuando es del caso, se hacen
comparaciones con el uso del superávit real del presupuesto en el mismo
contexto.
El superávit presupuestario en pleno empleo es una estimación de lo
que sería el resultado presupuestal con un programa dado de gasto y
tributación si la economía se hallara al nivel de producción de pleno
empleo. Es, desde luego, una construcción hipotética destinada a elimi-
nar del resultado presupuestal los efectos de las fluctuaciones del nivel
real de actividad económica, permitiendo la identificación de variaciones
en la política discrecional del gobierno. Una de las conclusiones del
1

trabajo es que, sujeto a ciertas limitaciones, el superávit en pleno empleo

es mejor que el superávit real para fines de análisis fiscal en un contexto
estático. Pero en un contexto dinámico la superioridad del superávit en
pleno empleo es menos evidente, salvo en ciertas situaciones que se
describen en el estudio. En general, los inconvenientes que van unidos
al uso del superávit real del presupuesto como forma de evaluar una
medida fiscal discrecional, tales como la posible variación de la magnitud
del superávit a consecuencia de las medidas discrecionales, existen tam-
bién en el caso del uso del superávit en pleno empleo cuando hay una
situación dinámica.
El concepto de superávit en pleno empleo se usa actualmente en los
Estados Unidos para determinar la magnitud del gasto del gobierno que
ha de incluirse en un presupuesto dado. Desde el punto de vista de la
política de estabilización, las repercusiones del uso de este concepto son
favorables al logro del pleno empleo, en comparación con el uso del
superávit real del presupuesto en el mismo contexto. Sin embargo, tal
uso del superávit en pleno empleo no garantiza que se cumpla el objetivo
del pleno empleo.

This page intentionally left blank

In statistical matter (except in the résumés and resúmenes) throughout
this issue,
Dots ( . . . ) indicate that data are not available;
A dash (—) indicates that the figure is zero or less than half the final
digit shown, or that the item does not exist;
A single dot (.) indicates decimals;
A comma (,) separates thousands and millions;
"Billion" means a thousand million ;
A short dash (-) is used between years or months (e.g., 1955-58 or
January-October) to indicate a total of the years or
months inclusive of the beginning and ending years or
months;
A stroke (/) is used between years (e.g., 1962/63) to indicate a fiscal
year or a crop year;
Components of tables may not add to totals shown because of rounding.
International Monetary Fund, Washington, D.C. 20431 U.S.A.

Telephone number: 202 393 6362
Cable address: Interfund

Voting and Decisions in the International Monetary Fund
A n Essay on the Law and Practice of the Fund
by Joseph Gold
Pp. xii + 368 $6.50
This book will be of interest not only as an account of the working
of the International Monetary Fund but also as an examination of the
process by which decisions are taken in one field of international activ-
ity. The process for arriving at international decisions is the subject of
continuous debate in a world in which the number of independent states
has increased rapidly, and in which important functions have been
vested in a growing number of international organizations.
There are at present 125 member countries in the Fund, in all parts
of the world, and in all stages of development. The voting power of
each member is weighted on the basis of its quota in the Fund, and
there are therefore great variations in voting power among members.
The basic rule for decisions is that they are taken by a majority of the
votes cast. The system of weighted voting power is buttressed by provi-
sions that deal with adjustable voting power, reserved powers, special
majorities, and other components of an elaborate framework for taking
decisions. The origin, negotiation, and purpose of these provisions are
explained. Within this framework, the Fund has been able, in the
exercise of all of its regulatory, financial, and other functions, to take
decisions by compromise and consensus, or at least by broad agree-
ment, and without resort to voting. The book describes both the legal
framework and the practice, and discusses, therefore, the elements of
authority, power, and influence.
Mr. Gold describes the composition, powers, and procedures of the
organs of the Fund, the Board of Governors, and the Executive Direc-
tors. He deals also with the role of the Managing Director and the staff.
Finally, there is a discussion of the work of committees in the Fund,
including the one most recently established, the Committee on Reform
of the International Monetary System and Related Issues. Twelve
appendices provide comprehensive information on various aspects of
the voting power of members, the voting strength of individual governors
and executive directors, the election of executive directors, and other
material relevant to the adoption of decisions.
Address all orders and inquiries to
The Secretary
INTERNATIONAL MONETARY FUND
19th and H Streets, N.W. Washington, D.C. 20431 U.S.A.

024 Article A006 en

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

024 Article A006 en

Uploaded by

Copyright:

Available Formats

The Full Employment Budget Surplus

Concept as a Tool of Fiscal Analysis

T HE FULL EMPLOYMENT BUDGET SURPLUS CONCEPT,

©International Monetary Fund. Not for Redistribution

The purpose of this paper is to describe the full employment budget

©International Monetary Fund. Not for Redistribution

lization policy implications of the use of the full employment surplus

I. Definition and Measurement of the Full

©International Monetary Fund. Not for Redistribution

fluctuations in the level of other items of government expenditure have

QUANTIFICATION OF THE CONCEPT n

©International Monetary Fund. Not for Redistribution

THE TREATMENT OF PRICE CHANGES

In measuring the size of the full employment surplus, it is assumed

©International Monetary Fund. Not for Redistribution

IL The Uses of the Full Employment Budget

©International Monetary Fund. Not for Redistribution

©International Monetary Fund. Not for Redistribution

indicator the full employment surplus is superior to the actual budget

III. The Economic Rationale of the Full

©International Monetary Fund. Not for Redistribution

out changing its slope, whereas discretionary changes in taxation may

©International Monetary Fund. Not for Redistribution

discretionary changes in taxation that do not affect the slope of the

CHART 1. COMPARISON OF THREE HYPOTHETICAL SCHEDULES OF THE

Levels of GNP corresponding to various levels of unemployment

Nevertheless, a larger full employment surplus will in all circum-

©International Monetary Fund. Not for Redistribution

effect on aggregate demand of these alternative budgets at significantly

CHART 2. COMPARISON OF Two HYPOTHETICAL SCHEDULES OF THE RELATIONSHIP

Levels of GNP corresponding to various levels of unemployment

©International Monetary Fund. Not for Redistribution

COMPARISON WITH THE ACTUAL SURPLUS

©International Monetary Fund. Not for Redistribution

employment surplus,23 but this method is only an approximate one that

©International Monetary Fund. Not for Redistribution

©International Monetary Fund. Not for Redistribution

expenditure included in the calculation of the actual surplus, and the

THE QUESTION OF WEIGHTING

At the theoretical level, the choice of the most suitable summary

©International Monetary Fund. Not for Redistribution

IV. The Use of the Full Employment Budget Surplus

©International Monetary Fund. Not for Redistribution

©International Monetary Fund. Not for Redistribution

V. Evaluation, Summary, and Conclusions

©International Monetary Fund. Not for Redistribution

©International Monetary Fund. Not for Redistribution

employment is not fully compatible with other stated objectives, such

COMPARISON WITH THE ACTUAL SURPLUS

©International Monetary Fund. Not for Redistribution

attainment of full employment more difficult in periods when income

©International Monetary Fund. Not for Redistribution

revenue system is equal to or greater than unity, a decrease in the size

©International Monetary Fund. Not for Redistribution

Regarding the use of the full employment surplus concept as a guide

Even the strongest proponents of the use of the full employment

©International Monetary Fund. Not for Redistribution

©International Monetary Fund. Not for Redistribution

Financial Integration and Interest Rate Linkages in the

This article focuses on theoretical and policy issues posed by financial

©International Monetary Fund. Not for Redistribution

of the premium and discount in the forward market to changes in interest

Main Features of the Employment Problem in