The Impact of Fiscal Consolidation on Human Development

Abstract

We find that fiscal austerity is associated with a reduction of human development standards, with the negative effect being particularly severe in the case of spending‐driven consolidation episodes. Fiscal adjustments are especially damaging for human development in developing countries (namely, African and Latin American countries). Additionally, the empirical evidence shows that (i) government stability is a crucial institutional determinant of human development, and (ii) while investment in physical capital can boost human development, government consumption and inflation are detrimental to it. Copyright © 2017 John Wiley & Sons, Ltd.

Government Budgets and Social Development in Africa: Moderating Effect of Government Effectiveness

“…This indicates inefficiencies in budget allocation or challenges in translating budgetary funds into tangible human development outcomes. Corroborating with this finding, Agnello et al (2017) and Rahmawati and Nur Intan (2020) both find that fiscal austerity and government stability are crucial factors in determining the impact of government spending on HDI. While Agnello et al (2017) highlights the negative effect of spending-driven fiscal consolidation on HDI, Rahmawati and Nur Intan (2020) emphasizes the potential positive influence of government spending on HDI, particularly in the educational dimension.…”

“…Corroborating with this finding, Agnello et al (2017) and Rahmawati and Nur Intan (2020) both find that fiscal austerity and government stability are crucial factors in determining the impact of government spending on HDI. While Agnello et al (2017) highlights the negative effect of spending-driven fiscal consolidation on HDI, Rahmawati and Nur Intan (2020) emphasizes the potential positive influence of government spending on HDI, particularly in the educational dimension. Maharda and Aulia (2020) further supports this, finding a significant positive association between government expenditure on education and HDI in Indonesia.…”

“…It proposes restructuring budget systems through systematic action plans to address these challenges. Similarly, Agnello et al, (2017) found that fiscal austerity is associated with a reduction of human development standards, with the negative effect being particularly severe in the case of spending-driven consolidation episodes. Fiscal adjustments are especially damaging for human development in developing countries (namely, African and Latin American countries).…”

Dynamic Linkage Between Economic Growth and Human Development: Time Series Evidence from Nigeria

“…Some studies, for example Barro () and Dauda (), reported a positive and significant relationship between education and economic growth. A slightly different study by Agnello, Castro, Jalles, and Sousa (), showed that fiscal consolidation is significantly associated with a reduction in human development standards in developing countries, and more especially in Africa and Latin America.…”

Austerity Measures, Infrastructure and Economic Development in South Africa (1996–2019)

“…2 Academic research has been conducted on austerity; however, very little analysis has been made on its effect on development, particularly in South Africa. A study by Agnello et al (2018) reviewed the effects of fiscal consolidation on human development in 71 countries. The paper found that fiscal austerity was associated with a reduction of 1 Compared to other BRICS economies with the exclusion of Brazil (15.6%), China (44.4%), India (30.6%), and Russia (24%) invest more in their infrastructure than South Africa (18.5%).…”