Small Governments, Big Ambitions: Fiscal Policy in East Asia and Pacific

Small Governments, Big Ambitions: Fiscal Policy in East Asia and Pacific argues that, over the past three decades, most economies in the East Asia and Pacific region have followed a "growth-enabling" approach to fiscal policy, taxing little and spending within their means, especially on infrastructure. Although this strategy has supported growth and macroeconomic stability--and has propelled much of the region to middle-income status--it also has led to underinvestment in education, health, social protection, and climate adaptation. Consequently, growth has slowed and become less resilient and less inclusive, putting the region's high-income aspirations at risk.

To achieve its development ambitions, the region must forge a new, "growth-enhancing" fiscal compact. The state will need to play a stronger role in boosting human capital and upgrading infrastructure to support the shift to more skill- and technology-intensive growth. It must also protect people and the economy from shocks in a region that is rapidly aging and increasingly exposed to extreme climate events. In each case, public spending must be paired with institutional and sectoral reforms that crowd-in pr