Can a Government Enhance Long-Run Growth by Changing the Composition of Public Expenditure?

Ormaechea, Santiago Acosta; Morozumi, Atsuyoshi

doi:10.5089/9781475550597.001

Cited by 36 publications

(34 citation statements)

References 34 publications

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“…Results consistently point to the importance of reallocating funds to education and infrastructure for long-term growth (e.g., Gemmell, Kneller, and Sanz 2012;Baffes and Shah 1998;and Acosta-Ormaechea and Morozumi 2013). These findings are consistent in the context of the endogenous growth theory that the main contributors to cross-country differences in the level of development and growth are investment in human capital, physical capital and infrastructure, and knowledge spillovers.…”

Section: Review Of Literaturesupporting

confidence: 74%

“…Due to lack of data, it cannot be determined whether the decline in income taxes was due to corporate or personal income taxes. Ormaechea and Morozumi (2013) show that this non-monotonic relationship between the level of development and public expenditure happens at about a per capita income of $20,000 in PPP terms. Figure 6 shows the evolution of average total government expenditure as a share of GDP of developing Asia and OECD members between 1990 and 2011.…”

Section: A Taxationmentioning

confidence: 99%

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Fiscal Policy and Growth in Developing Asia

et al. 2014

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In this paper we empirically explore the relationship between fiscal policy and economic growth in developing Asia. The region's overall level of taxes and government spending are substantially lower than those prevailing in advanced economies. Nevertheless, there are conceptual grounds why fiscal policy, including the composition of taxes and government spending, can have a significant effect on growth, as our empirical analysis shows. In line with economic theory, property taxes have a more benign impact on growth than direct taxes, and spending more on education has a sizable positive impact on growth. The views expressed in this paper are those of the author and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent.ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use.By making any designation of or reference to a particular territory or geographic area, or by using the term "country" in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area. Note: In this publication, "$" refers to US dollars.The ADB Economics Working Paper Series is a forum for stimulating discussion and eliciting feedback on ongoing and recently completed research and policy studies undertaken by the Asian Development Bank (ADB) staff, consultants, or resource persons. The series deals with key economic and development problems, particularly those facing the Asia and Pacific region; as well as conceptual, analytical, or methodological issues relating to project/program economic analysis, and statistical data and measurement. The series aims to enhance the knowledge on Asia's development and policy challenges; strengthen analytical rigor and quality of ADB's country partnership strategies, and its subregional and country operations; and improve the quality and availability of statistical data and development indicators for monitoring development effectiveness.

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Section: Review Of Literaturesupporting

confidence: 74%

Section: A Taxationmentioning

confidence: 99%

Fiscal Policy and Growth in Developing Asia

et al. 2014

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“…These results suggest that the effect of partial democratization on government expenditure is quite different from that of full democratization. Borderline democratization has a negative impact on expenditure on health, education, and general public services (see columns (2), (3), and (7), respectively), whereas it has a positive impact on expenditure on social protection, as seen in column (4). Moreover, the reverse transition from a democracy to a dictatorship increases total expenditure (see column (1)) and expenditure on social protection (see column (4)).…”

Section: Different Types Of Transitionsmentioning

confidence: 97%

“…Then, these timevariant effects can lead to a non-monotonic relationship between democratization and government expenditure. 4 In addition, our estimation procedure can suffer from misspecification, as pointed by Laporte and Windmeijer (2005). Therefore, following Papaioannou and Siourounis (2008b), we divide the periods before and after the regime change into five subperiods (pre-transition, transition, short-run democratization, medium-run democratization, and long-run democratization) and examine the effects of democratization in each period.…”

Section: Introductionmentioning

confidence: 99%

How does democratization affect the composition of government expenditure?

Kotera

Okada

2017

Journal of Economic Behavior & Organization

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This study examines the effects of democratization on the size and composition of government expenditure using the data of 125 countries between 1972 and 2010 at most. Specifically, we focus not only on the total expenditure but also on their composition and employ dichotomous indices of political regimes rather than score indices. Moreover, we construct instruments for democratization based on the democratization wave and conduct an instrumental variables estimation to address endogeneity problems. Our results show that while democratization does not have a significant impact on total expenditure, it increases expenditure on health and education and decreases expenditure on defense. Furthermore, considering the time-varying effect of democratization, defense expenditure starts decreasing immediately after a regime change and health expenditure increases in the medium and long run, while they do not significantly vary before a regime change. Thus, while focusing only on total expenditure does not uncover the effects of democratization, considering detailed categories of government expenditure enables us to understand how democratization changes governments' behaviors.

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“…A low return on a public investment resulting in inefficiency and low quality may be due to (i) the asymmetry of information in the implementation of projects, (ii) the wasting of resources and (iii) a lack of technical expertise. Thus, the spending of resources does not necessarily imply an expansion of physical capital, like the construction of a highway that leads nowhere (Acosta-Ormaechea and Morozumi, 2013).…”

Section: What Does the International Literature Say?mentioning

confidence: 99%

Alocação dos gastos públicos e crescimento econômico: um estudo em painel para os estados brasileiros

Neduziak

Correia

2017

Rev. Adm. Pública

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The effect of the allocation of government spending on the economy is currently a subject of interest given the fiscal budget constraints facing governments due to fiscal crises or adjustments. This paper thus seeks to study the effects of the allocation of government spending on the GDP behavior of Brazilian states from 1995 to 2011. Using a conventional FE (Fixed Effect) panel data model, this paper's main results are as follows: (i) administration and planning, (ii) judicial, (iii) housing and (iv) social assistance spending were found to be productive, while (i) education and culture and (ii) legislative spending were found to be unproductive. In addition, some evidence has been found that the introduction of public borrowing rules by the Fiscal Responsibility Law has been beneficial to the economic growth of Brazilian states. Keywords: government spending; economic growth; Brazilian states. Alocação dos gastos públicos e crescimento econômico: um estudo em painel para os estados brasileirosTendo em vista as restrições orçamentárias impostas aos governos, em contextos de crises e ajustes fiscais, fazse necessária a discussão acerca do efeito da alocação dos gastos públicos sobre o estado da economia. Nesse sentido, o presente ensaio busca discutir os efeitos da alocação do gasto público sobre o comportamento do PIB real dos estados brasileiros. Para tanto, foi utilizado um painel convencional de Efeitos Fixos (EF), no período de 1995/2011. Os gastos em: (i) administração e planejamento, (ii) judiciário, (iii) habitação e urbanismo e (iv) assistência e previdência mostraram-se produtivos e os gastos em: (i) educação e cultura e (ii) legislativo mostraram-se improdutivos. Foram encontradas evidências de que a Lei de Responsabilidade (LRF) tem sido benéfica ao crescimento econômico dos estados brasileiros. Palavras-chave: gasto público; crescimento econômico; estados brasileiros. La alocación de los gastos públicos y crecimiento económico: un estudio de datos en panel aplicado a los estados de BrasilEl presente trabajo analiza los efectos de la alocación del gasto público sobre el crecimiento económico de los estados de Brasil en el período de 1995-2012. La investigación se realizó mediante el análisis de datos en panel. Los resultados muestran que los gastos con el: (i) ejecutivo, (ii) judicial, (iii) habitación y (iv) bienestar social impactaron el crecimiento económico positivamente, mientras que los gastos en: (i) educación y (ii) legislativo no tuvieron impacto productivo sobre el crecimiento económico. Además, la introducción de reglas fiscales a través de la "Ley de Responsabilidad Fiscal" ha sido beneficiosa al crecimiento de los estados. Palabras clave: gastos públicos; crecimiento económico; estados de Brasil.

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Can a Government Enhance Long-Run Growth by Changing the Composition of Public Expenditure?

Cited by 36 publications

References 34 publications

Fiscal Policy and Growth in Developing Asia

Fiscal Policy and Growth in Developing Asia

How does democratization affect the composition of government expenditure?

Alocação dos gastos públicos e crescimento econômico: um estudo em painel para os estados brasileiros

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