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Is Social Spending Procyclical? Evidence for Developing Countries

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  • Arze del Granado, Javier
  • Gupta, Sanjeev
  • Hajdenberg, Alejandro
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    Abstract

    This paper studies the cyclical behavior of public spending on health and education in 145 countries during 1987–2007. It finds that spending on education and health is procyclical in developing countries and acyclical in developed countries. In addition, education and health expenditures follow an asymmetric pattern in developing countries; they are procyclical during periods of positive output gap and acyclical during periods of negative output gap. Furthermore, the degree of cyclicality is higher the lower the level of economic development.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0305750X12001921
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    Bibliographic Info

    Article provided by Elsevier in its journal World Development.

    Volume (Year): 42 (2013)
    Issue (Month): C ()
    Pages: 16-27

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    Handle: RePEc:eee:wdevel:v:42:y:2013:i:c:p:16-27

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    Web page: http://www.elsevier.com/locate/worlddev

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    Keywords: fiscal policy; business cycles; social spending;

    References

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    1. Alberto Alesina & Guido Tabellini, 2005. "Why Is Fiscal Policy Often Procyclical?," Working Papers 297, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    2. Akitoby, Bernardin & Clements, Benedict & Gupta, Sanjeev & Inchauste, Gabriela, 2006. "Public spending, voracity, and Wagner's law in developing countries," European Journal of Political Economy, Elsevier, vol. 22(4), pages 908-924, December.
    3. Lane, Philip R., 2003. "The cyclical behaviour of fiscal policy: evidence from the OECD," Journal of Public Economics, Elsevier, vol. 87(12), pages 2661-2675, December.
    4. Fabrizio Balassone & Maura Francese & Stefania Zotteri, 2010. "Cyclical asymmetry in fiscal variables in the EU," Empirica, Springer, vol. 37(4), pages 381-402, November.
    5. Richard Blundell & Stephen Bond, 2000. "GMM Estimation with persistent panel data: an application to production functions," Econometric Reviews, Taylor & Francis Journals, vol. 19(3), pages 321-340.
    6. Zvi Hercowitz & Michel Strawczynski, 2004. "Cyclical Ratcheting in Government Spending: Evidence from the OECD," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 353-361, February.
    7. Julia Darby & Jacques Melitz, 2008. "Social spending and automatic stabilizers in the OECD," Economic Policy, CEPR & CES & MSH, vol. 23, pages 715-756, October.
    8. Andres Velasco, 1997. "A Model of Endogenous Fiscal Deficits and Delayed Fiscal Reforms," NBER Working Papers 6336, National Bureau of Economic Research, Inc.
    9. Ethan Ilzetzki & Carlos A. Vegh, 2008. "Procyclical Fiscal Policy in Developing Countries: Truth or Fiction?," NBER Working Papers 14191, National Bureau of Economic Research, Inc.
    10. Benjamin M. Friedman, 1979. "Crowding Out Or Crowding In? The Economic Consequences of Financing Government Deficits," NBER Working Papers 0284, National Bureau of Economic Research, Inc.
    11. Fabrizio Balassone & Maura Francese & Stefania Zotteri, 2008. "Cyclical asymmetry in fiscal variables," Temi di discussione (Economic working papers) 671, Bank of Italy, Economic Research and International Relations Area.
    12. Roberto Perotti, 1999. "Fiscal Policy In Good Times And Bad," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1399-1436, November.
    13. Perotti, Roberto, 1996. "Redistribution and Non-consumption Smoothing in an Open Economy," Review of Economic Studies, Wiley Blackwell, vol. 63(3), pages 411-33, July.
    14. Reinhart, Carmen & Kaminsky, Graciela & Vegh, Carlos, 2004. "When it rains, it pours: Procyclical capital flows and macroeconomic policies," MPRA Paper 13883, University Library of Munich, Germany.
    15. Ugo Panizza & Dany Jaimovich, 2007. "Procyclicality or Reverse Causality?," Research Department Publications 4508, Inter-American Development Bank, Research Department.
    16. Ricardo J. Caballero & Arvind Krishnamurthy, 2004. "Fiscal Policy and Financial Depth," NBER Working Papers 10532, National Bureau of Economic Research, Inc.
    17. Enrique G. Mendoza & P. Marcelo Oviedo, 2006. "Fiscal Policy and Macroeconomic Uncertainty in Developing Countries: The Tale of the Tormented Insurer," NBER Working Papers 12586, National Bureau of Economic Research, Inc.
    18. Ernesto Talvi & Carlos A. Vegh, 2000. "Tax Base Variability and Procyclical Fiscal Policy," NBER Working Papers 7499, National Bureau of Economic Research, Inc.
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