Padda, Ihtsham ul Haq
September 2011
Journal of Economics & Economic Education Research;2011, Vol. 12 Issue 3, p73
Academic Journal
The internal conflict of Sri Lanka has seriously affected its fiscal stance and put it at the door of the bankruptcy through high fiscal deficits and sky rocketing public debt. The end of thirty years internal conflict in May, 2009 is a major turning point. The growth performance of Sri Lanka can boost up by gaining the confidence of investors and taking control over Northern Province. This study analyzes whether it has tried to minimize the welfare cost of revenue collection. It finds that, in spite of financing expenditure of internal conflicts, has been conducted in accordance to tax smoothing policy but not perfectly. Now, when the conflict is over reduction in the deficit can be attained if Sri Lanka finances its permanent expenditure by increasing the tax rate; and if there are transitory shocks to the expenditures or output these should be financed through creating public debt but this debt should be contingent. The rehabilitation in the internal conflict affected areas requires building infrastructure in those areas. So that conflict affected people should also get fruits of the development and come in the main stream and not indulge in anti state activities. For this purpose one of the options would be reduction in the defense expenditure which can be used for development.


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