Public Debt and Social Expenditure: Friends or Foes?
AbstractThis paper assesses the effects of total public debt (external and domestic) on social expenditure worldwide and in Latin America using an unbalanced panel of around 50 countries for the period 1985-2003. The most robust and important finding is that higher debt ratios do reduce social expenditures, as popular opinion holds. This effect comes mostly from the stock of debt and not from debt service payments, indicating that debt displaces social expenditures not so much because it raises the debt burden, but because it reduces the room (or the appetite) for further indebtedness. Loans from multilateral organizations like the World Bank or the Inter-American Development Bank do not seem to ameliorate the adverse consequences of debt on social expenditures. In accordance with popular wisdom, our results indicate that defaulting on debt obligations does help to increase social expenditures. Nonetheless, Latin America is different in some respects. The adverse effects of debt and debt-interest payments are significantly stronger in the region, which makes defaults more beneficial to social expenditures. While many of these conclusions are very heterodox, their main policy implication is not; there is no better way to protect social expenditures than to avoid overindebtedness, especially in Latin America.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 4465.
Date of creation: May 2006
Date of revision:
Other versions of this item:
- Lora, Eduardo & Olivera, Mauricio, 2007. "Public debt and social expenditure: Friends or foes?," Emerging Markets Review, Elsevier, vol. 8(4), pages 299-310, December.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Yeyati, Eduardo Levy & Panizza, Ugo, 2011.
"The elusive costs of sovereign defaults,"
Journal of Development Economics,
Elsevier, vol. 94(1), pages 95-105, January.
- Dany Jaimovich & Ugo Panizza, 2006.
"Public Debt around the World: A New Dataset of Central Government Debt,"
Research Department Publications
4461, Inter-American Development Bank, Research Department.
- Dany Jaimovich & Ugo Panizza, 2010. "Public debt around the world: a new data set of central government debt," Applied Economics Letters, Taylor and Francis Journals, vol. 17(1), pages 19-24.
- Mahdavi, Saeid, 2004. "Shifts in the Composition of Government Spending in Response to External Debt Burden," World Development, Elsevier, vol. 32(7), pages 1139-1157, July.
- Peter S. Heller & Alan A. Tait, 1982. "International Comparisons of Government Expenditure," IMF Occasional Papers 10, International Monetary Fund.
- Mauro, Paolo, 1998. "Corruption and the composition of government expenditure," Journal of Public Economics, Elsevier, vol. 69(2), pages 263-279, June.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Luis Daniel Martinez).
If references are entirely missing, you can add them using this form.