to adopt the balanced budget strategy at this time when Taiwan is facing an
unprecedented economic recession caused by reduced private investment and
decreasing foreign exports.
While we advocate effective and productive uses of the fiscal space, in view
of international isolation of Taiwan from world financial institutions, we also see
the merit of "
fiscal conservatism.
" Some of the current urgent economic and
social programs to improve the standard of living and to build future economic
growth potentials are explored briefly at the end of the paper.
Part I. International Comparisons of Taiwan's Government
Deficit and Public Debt
1. Introduction
According to the recent report by a World Bank group (Didier, 2015), the
growth of 24 emerging markets (EM) economies have been slowing down since
2010, as their investments and exports declined sharply, while the advanced
economies have been recovering slowly but steadily since 2012. Curiously,
in their study, South Korea is included in the EM study. Thus, Taiwan, despite
its advanced country status (Hsiao, 2016), may as well be included in the EM
economies.
As the advanced countries are expected to tightening their financial
conditions, financial costs are expected to increase, and capital flow to emerging
countries may slow down further. Thus, the fiscal policy, instead of monetary
policy, becomes an important government policy tool in emerging markets. The
availability and efficiency of fiscal policy in turn depend on the size of the fiscal
space. We define fiscal space as the difference between the actual size of fiscal
instruments (government deficit, public debt, and government credibility) and the
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