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How does the composition of public spending matter?

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Author Info
Paternostro, Stefano
Rajaram, Anand
Tiongson, Erwin R.
Abstract

Public spending has effects which 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 (HIPCs) hasbeen made conditional on increased expenditure on categories that are thought to be"pro-poor". This paper responds to the growing concern being expressed about 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. There is a need to combine principles of both public economics and growth theory to develop appropriate theoretical guidance for public expenditure policy. This paper identifies a number of approaches that are beginning to address this gap. Building on these approaches, it proposes a framework that has its foundation in a broadly articulated development strategy and its economic goals such as growth, equity, and poverty reduction. It recommends the use of public economics principles to clarify the roles of the private and public sectors and to recognize the complementarity of spending, taxation, and regulatory instruments available to affect public policy. 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 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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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3555.

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Date of creation: 01 Mar 2005
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Handle: RePEc:wbk:wbrwps:3555

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Keywords: Poverty Assessment; Achieving Shared Growth; Environmental Economics&Policies; Health Economics&Finance; Governance Indicators;

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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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  2. Marianne Fay & Danny Leipziger & Quentin Wodon & Tito Yepes, 2003. "Achieving the Millennium Development Goals : The role of infrastructure," Policy Research Working Paper Series 3163, The World Bank. [Downloadable!]
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    • Lipton, Michael & Ravallion, Martin, 1995. "Poverty and policy," Handbook of Development Economics, in: Hollis Chenery† & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 3, chapter 41, pages 2551-2657 Elsevier. [Downloadable!] (restricted)
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  12. T. Paul Schultz, 2002. "Wage Gains Associated with Height as a Form of Health Human Capital," Working Papers 841, Economic Growth Center, Yale University. [Downloadable!]
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  13. Lanjouw, Peter & Ravallion, Martin, 1999. "Benefit Incidence, Public Spending Reforms, and the Timing of Program Capture," World Bank Economic Review, Oxford University Press, vol. 13(2), pages 257-73, May.
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  17. Fan, Shenggen & Zhang, Xiaobo & Rao, Neetha, 2004. "Public expenditure, growth, and poverty reduction in rural Uganda," DSGD discussion papers 4, International Food Policy Research Institute (IFPRI). [Downloadable!]
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  19. Ajwad, Mohamed Ihsan & Wodon, Quentin, 2007. "Do local Governments maximize access rates to public services across areas?: A test based on marginal benefit incidence analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 47(2), pages 242-260, May. [Downloadable!] (restricted)
  20. Niloy Bose & M. Emranul Haque & Denise R. Osborn, 2007. "Public Expenditure And Economic Growth: A Disaggregated Analysis For Developing Countries," Manchester School, University of Manchester, vol. 75(5), pages 533-556, 09. [Downloadable!] (restricted)
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  22. Gupta, Sanjeev & Clements, Benedict & Baldacci, Emanuele & Mulas-Granados, Carlos, 2005. "Fiscal policy, expenditure composition, and growth in low-income countries," Journal of International Money and Finance, Elsevier, vol. 24(3), pages 441-463, April. [Downloadable!] (restricted)
  23. Angus Deaton, 2003. "Health, Inequality, and Economic Development," Journal of Economic Literature, American Economic Association, vol. 41(1), pages 113-158, March.
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  24. Paul Mosley & John Hudson & Arjan Verschoor, 2004. "Aid, Poverty Reduction and the 'New Conditionality'," Economic Journal, Royal Economic Society, vol. 114(496), pages F217-F243, 06. [Downloadable!] (restricted)
  25. Mackinnon, John & Reinikka, Ritva, 2000. "Lessons from Uganda on strategies to fight poverty," Policy Research Working Paper Series 2440, The World Bank. [Downloadable!]
  26. Ravallion, Martin, 2003. "In measuring aggregate"social efficiency"," Policy Research Working Paper Series 3166, The World Bank. [Downloadable!]
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  27. Karuna Gomanee & Sourafel Girma & Oliver Morrissey, 2005. "Aid, public spending and human welfare: evidence from quantile regressions," Journal of International Development, John Wiley & Sons, Ltd., vol. 17(3), pages 299-309. [Downloadable!]
  28. Belli, Pedro, 1996. "Is economic analysis of projects still useful?," Policy Research Working Paper Series 1689, The World Bank. [Downloadable!]
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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. 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. [Downloadable!]
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