Distributional Effects of Growth and Public Expenditures in Africa: Estimates for Tanzania and Rwanda

Abstract

In this paper we explore the effects of fiscal policies and growth on measures of the household welfare across the distribution of expenditure for two countries in Africa: Rwanda and Tanzania. We explore issues of inefficiency in government expenditures and dilution of growth benefits among the better off sectors of the population in these two countries (in lieu of the poor sectors) by looking at the effects within a country and across different groups of households and administrative entities. We exploit variation in expenditures and growth across and within regions of each country to estimate the elasticities of income with respect to these expenditures at different points of the expenditure distribution, using household survey data and government expenditure at the district level. We find that overall, mean income growth benefits the top income groups. The welfare spillovers are mostly present for top 20% of the income distribution, with the middle of the distribution in Tanzania responding slightly to these spillovers. Social Public expenditures does not affect inequality in a considerable manner, but tend to work towards decreasing inequality. However, mean income growth is related to 'increases' in inequality in the sense that the richest sectors of the population benefit the most from growth. We find that the growth elasticity of income is only above one for the top quintile in both countries. In Tanzania a 1% increase in average household expenditure is related to a 1.96% expenditure growth in the top quintile and 0.43% in the third quintile. While in Rwanda it is related to a 1.93% increase in household expenditure in the top 20% of the distribution.

Investment and inclusive growth in sub-Saharan Africa

“…Additional evidence showed that employment is key to attaining a higher income and improving access to infrastructure (Batabyal, 2013). In Tanzania and Rwanda, Almanzar and Torero (2017) employed the fixed effect (FE) and quantile regression to investigate the impact of fiscal spending and growth on household welfare across public-expenditure targeted groups. They revealed that the mean expenditure growth benefited the top expenditure groups and that the richest segments of the population benefited the most from growth.…”

Public investment prioritization for Rwanda’s inclusive agricultural transformation: Evidence from rural investment and policy analysis modeling

“…This study aims to generate evidence that can help the Rwandan government to design agricultural policies and expenditure portfolios that reflect today's broader food system focus, embody multiple development goals, and promote cost-effective market-led transformation. The study builds on prior research on Rwanda that assesses the impact of public expenditure on issues such as agricultural research and development (R&D) (Al-Mamun et al 2018), urbanization and agglomeration (World Bank and GoR 2020), and fiscal spending more generally (Almanzar and Torero 2017).…”

Subnational public expenditures, short‐term household‐level welfare, and economic flexibility: Evidence from Nigeria

“…This article also contributes to various strands of literature. First, the article contributes to the recent literature on the roles of social‐sector PE in general (e.g., Almanzar & Torero, 2017; Anderson et al., 2017, 2018) as well as PE for agriculture (Fan & Zhang, 2008; Fan et al., 2000; Mogues & Benin, 2012; Mogues & Olofinbiyi, 2020) by providing microlevel evidence. By directly estimating the effects of SNPE, the article also partly contributes to the literature on fiscal decentralization and economic growth in developing countries (e.g., Bird & Vaillancourt, 2008; Martinez‐Vazquez & McNab, 2003).…”