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How Does the Composition of Public Spending Matter?

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  • Stefano Paternostro
  • Anand Rajaram
  • Erwin R. Tiongson
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    Abstract

    Public spending has effects on growth and distribution that are complex to trace and difficult to quantify. But the composition of public expenditure has become the key instrument by which development agencies seek to promote economic development. In recent years, the development assistance to heavily indebted poor countries has been made conditional on increased expenditure on categories that are thought to be “pro-poor”. This paper investigates the conceptual foundations and the empirical basis for the belief that poverty can be reduced through targeted public spending. While it is widely accepted that growth and redistribution are important sources of reduction in absolute poverty, a review of the literature confirms the lack of an appropriate theoretical framework for assessing the impact of public spending on growth as well as poverty. The dangers of policy decisions that are not well grounded in theory and supported by empirical evidence are indicated. With regard to the impact of any given type of public spending, policy recommendations must be tailored to countries and be based on empirical analysis that takes account of the lags and leads in their effects on equity and growth and ultimately on poverty. The paper sketches out such a framework and provides some evidence as the first step in what will have to be a longer-term research agenda to provide theoretically and empirically robust and verifiable guidance to public spending policy.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/13600810601167595
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Oxford Development Studies.

    Volume (Year): 35 (2007)
    Issue (Month): 1 ()
    Pages: 47-82

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    Handle: RePEc:taf:oxdevs:v:35:y:2007:i:1:p:47-82

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    Cited by:
    1. Branka Andjelkovic & Alexander Chubrik & Marek Dabrowski & Roman Mogilevsky & Irina Sinitsina & Przemyslaw Wozniak, 2010. "Challenges and Trajectories of Fiscal Policy and PFM Reform in CEE/CIS," CASE Network Reports 0092, CASE-Center for Social and Economic Research.
    2. Tewodaj Mogues, 2011. "The Bang for the Birr: Public Expenditures and Rural Welfare in Ethiopia," Journal of Development Studies, Taylor & Francis Journals, vol. 47(5), pages 735-752.
    3. Kasuga, Hidefumi & Morita, Yuichi, 2012. "Aid effectiveness, governance and public investment," Economic Modelling, Elsevier, vol. 29(2), pages 514-521.
    4. Mogues, Tewodaj & Ayele, Gezahegne & Paulos, Zelekawork & Fan, Shenggen, 2006. "How Effective is Public Spending? Public Investment Composition and Rural Welfare in Ethiopia," 2006 Annual meeting, July 23-26, Long Beach, CA 21258, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    5. Allcott, Hunt & Lederman, Daniel & Lopez, Ramon, 2006. "Political institutions, inequality, and agricultural growth : the public expenditure connection," Policy Research Working Paper Series 3902, The World Bank.
    6. Jorge Martínez-Vázquez & Violeta Vulovic & Blanca Moreno Dodson, 2012. "The Impact of Tax and Expenditure Policies on Income Distribution: Evidence from a Large Panel of Countries," Hacienda Pública Española, IEF, vol. 200(1), pages 95-130, March.
    7. Chemingui, Mohamed Abdelbasset, 2007. "Public spending and poverty reduction in an oil-based economy: The case of Yemen," IFPRI discussion papers 701, International Food Policy Research Institute (IFPRI).
    8. Chekol Kidane & Getnet Alemu, 2010. "Benishangul-Gumuz Regional State : Public Finance Review," World Bank Other Operational Studies 12340, The World Bank.

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