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What do OECD countries cut first at a time of fiscal adjustments? A dynamic panel data approach

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Author Info
Ismael Sanz (Universidad Complutense de Madrid)
Francisco Velazquez (Universidad Complutense de Madrid)

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Abstract

Following the present atmosphere of budgetary cuts we analyze the effects of fiscal consolidation on the composition of government expenditures by functions. Using a dynamic voter group decision model and exploiting the panel structure of the dataset - 26 OECD countries over the period 1970-1997- by GMM estimation we find that fiscal adjustments protect social expenditure. Nevertheless, we find that among social expenditure, those being also productive such as education and health are even more protected than those not being productive as social welfare expenditure. Moreover, fiscal adjustments do not fall primarily over the most productive expenditure, transport and communications, but over defense and economic services.

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Paper provided by Department of Economics, UC Santa Barbara in its series University of California at Santa Barbara, Economics Working Paper Series with number 19-03.

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Date of creation: 01 Dec 2003
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Handle: RePEc:cdl:ucsbec:19-03

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Related research
Keywords: Fiscal consolidation; Composition of government expenditure; Dynamic panel data; voter group decision model;

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