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Expenditure Composition, Fiscal Adjustment, and Growth in Low-Income Countries

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  • Benedict J. Clements
  • Sanjeev Gupta
  • Emanuele Baldacci
  • Carlos Mulas-Granados

Abstract

This paper assesses the effects of expenditure composition as well as fiscal adjustment on economic growth in a sample of 39 low-income countries during the 1990s. The paper finds that strong budgetary positions and fiscal consolidation are generally associated with higher economic growth in both the short and long terms. The composition of public outlays also matters: Countries where spending is concentrated on wages tend to have lower growth, while those that allocate higher shares to capital and nonwage goods and services enjoy faster output expansion. Expenditure composition, along with the size of the fiscal consolidation and initial fiscal conditions, affects the sustainability of adjustment. Initial fiscal conditions also have a bearing on the nexus between fiscal deficits and growth.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 02/77.

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Length: 40
Date of creation: 01 Apr 2002
Date of revision:
Handle: RePEc:imf:imfwpa:02/77

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Related research

Keywords: Economic growth; Government expenditures; fiscal policy; expenditure; expenditures; budget balance; fiscal adjustment; fiscal consolidations; public expenditure; budget composition; fiscal adjustments; capital expenditure; expenditure composition; fiscal consolidation; public spending; total expenditures; total expenditure; tax revenue; fiscal conditions; capital expenditures; fiscal balance; composition of expenditures; fiscal variables; government spending; public expenditures; fiscal deficit; tax revenues; taxation; composition of public spending; fiscal stance; public expenditure composition; fiscal impulse; budget deficit; fiscal contractions; public debt; budget deficits; government budget; public expenditure reform; government expenditure; fiscal policy variables; budget constraint; tax collection; fiscal deficits; government budget constraint; fiscal affairs department; tax increases; fiscal policies; expenditure reform; fiscal consolidation effort; budget balances; fiscal consolidation episodes; fiscal affairs; expenditure items; structural adjustment; fiscal budget; fiscal disequilibria; tax administration; fiscal expansion; expenditure categories; budgetary consolidation; fiscal position; government budget balance; composition of expenditure; expenditure priorities; fiscal imbalances; fiscal frameworks; composition of government spending; fiscal expansions; public deficits; fiscal multipliers; spending cuts; revenue collection; budgetary positions; fiscal adjustment effort; fiscal reform; fiscal positions; fiscal performance; tax policy; fiscal adjustment episodes; budget imbalances; tax rates; fiscal stabilizations; annual budget; public sector wage bill; primary deficit; fiscal consolidation on growth; tax evasion;

References

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Citations

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Cited by:
  1. Benedict J. Clements & Sanjeev Gupta & Hong-Sang Jung, 2003. "Real and Distributive Effects of Petroleum Price Liberalization," IMF Working Papers 03/204, International Monetary Fund.
  2. Augustin Fosu, 2010. "The External Debt-Servicing Constraint and Public-Expenditure Composition in Sub-Saharan Africa," African Development Review, African Development Bank, vol. 22(3), pages 378-393.
  3. Catherine A. Pattillo & Stephen A. O'Connell & Christopher Adam & Edward F. Buffie, 2004. "Exchange Rate Policy and the Management of official and Private Capital Flows in Africa," IMF Working Papers 04/216, International Monetary Fund.
  4. Saleh M. Nsouli & Norbert Funke, 2003. "The New Partnership for Africa's Development (NEPAD) Opportunities and Challenges," IMF Working Papers 03/69, International Monetary Fund.
  5. Anthony J. Pellechio & Saqib Rizavi & Phebby Kufa, 2003. "Fiscal Sustainability and Policy Issues in the Eastern Caribbean Currency Union," IMF Working Papers 03/162, International Monetary Fund.
  6. Edward Buffie & Christopher Adam & Stephen O'Connell & Catherine Patillo, 2006. "Riding the Wave: Monetary Responses to Aid Surges in Low-Income Countries," CSAE Working Paper Series 2006-04, Centre for the Study of African Economies, University of Oxford.
  7. Naoko C. Kojo & Arye L. Hillman & Emanuele Baldacci, 2003. "Growth, Governance, and Fiscal Policy Transmission Channels in Low-Income Countries," IMF Working Papers 03/237, International Monetary Fund.
  8. Bayraktar, Nihal & Moreno-Dodson, Blanca, 2010. "How can public spending help you grow? an empirical analysis for developing countries," Policy Research Working Paper Series 5367, The World Bank.
  9. Borys, Paweł & Ciżkowicz, Piotr & Rzońca, Andrzej, 2013. "Panel data evidence on effects of fiscal impulses in the EU New Member States," MPRA Paper 48243, University Library of Munich, Germany.
  10. Alptekin, Aynur & Levine, Paul, 2010. "Military Expenditure and Economic Growth: A Meta-Analysis," MPRA Paper 28853, University Library of Munich, Germany.
  11. Carlos Mulas-Granados, 2003. "The Trade-Off between Growth & Equality and the Economic Impact of Alternative Fiscal Adjustment Strategies in the EU," European Economy Group Working Papers 20, European Economy Group.
  12. Kalle Kukk, 2007. "Fiscal Policy Effects on Economic Growth: Short Run vs Long Run," Working Papers 167, Tallinn School of Economics and Business Administration, Tallinn University of Technology.
  13. Carlos Mulas-Granados, 2005. "Fiscal Adjustments and the Short-Term Trade-Off between economic growth and equality," Hacienda Pública Española, IEF, vol. 172(1), pages 61-92, June.

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