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

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

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

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Length: 40 pages
Date of creation: 14 May 2002
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Handle: RePEc:imf:imfwpa:02/77

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Keywords: Fiscal policy ; Economic growth ; Government expenditures ; Low income developing countries ;

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References listed on IDEAS
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.:
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    Other versions:
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Full references

Cited by:
(explanations, 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.)

  1. Naoko C. Kojo & Emanuele Baldacci & Arye L. Hillman, 2003. "Growth, Governance, and Fiscal Policy Transmission Channels in Low-Income Countries," IMF Working Papers 03/237, International Monetary Fund. [Downloadable!]
    Other versions:
  2. Norbert Funke & Saleh M. Nsouli, 2003. "The New Partnership for Africa's Development (NEPAD): Opportunities and Challenges," IMF Working Papers 03/69, International Monetary Fund. [Downloadable!]
  3. Phebby Kufa & Saqib Rizavi & Anthony J. Pellechio, 2003. "Fiscal Sustainability and Policy Issues in the Eastern Caribbean Currency Union," IMF Working Papers 03/162, International Monetary Fund. [Downloadable!]
  4. Raghav Gaiha & Katsushi S. Imai & Ganesh Thapa & Woojin Kang, 2009. "Fiscal Stimulus, Agricultural Growth and Poverty in Asia and the Pacific Region: Evidence from Panel Data," The School of Economics Discussion Paper Series 0919, Economics, The University of Manchester. [Downloadable!]
  5. Kalle Kukk, 2007. "Fiscal Policy Effects on Economic Growth: Short Run vs Long Run," Working Papers 167, School of Economics and Business Administration, Tallinn University of Technology. [Downloadable!]
  6. Benedict J. Clements & Sanjeev Gupta & Hong-Sang Jung, 2003. "Real and Distributive Effects of Petroleum Price Liberalization: The Case of Indonesia," IMF Working Papers 03/204, International Monetary Fund. [Downloadable!]
  7. Fosu, Augustin Kwasi, 2007. "The External Debt-Servicing Constraint and Public Expenditure Composition: Evidence from African Economies," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
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