What do governments buy?
The authors develop a simple analytical framework that shows how the composition of public spending affects economic growth. Distinguishing between productive and unproductive government spending (that which complements private sector productivity and that which does not), they show that increasing the share of productive spending leads to a higher steady-state economic growth rate. They use data from 69 developing countries over 20 years to determine which components of public spending are productive. They find that an increase in the share of current spending has positive and statistically significant effects on growth. Otherwise, the news is mainly negative. The relationship between the capital component of public spending and per capita growth is negative. The same is true of the share of spending on transport and communications. The shares spent on health and education have no significant impact, although parts of those shares - the parts spent on preventative care and"other education"- do. The results raise the question whether public spending actually leads to a flow of public goods and services.
|Date of creation:||1993|
|Date of revision:|
|Publication status:||Published as World Bank Policy Research Working Paper Series 1082|
|Contact details of provider:|| Web page: http://cema.cufe.edu.cn/|
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- Easterly, William R., 1989.
"Policy distortions, size of government, and growth,"
Policy Research Working Paper Series
344, The World Bank.
- William Easterly, 1989. "Policy Distortions, Size of Government, and Growth," NBER Working Papers 3214, National Bureau of Economic Research, Inc.
- Ahmed, Shaghil, 1986. "Temporary and permanent government spending in an open economy: Some evidence for the United Kingdom," Journal of Monetary Economics, Elsevier, vol. 17(2), pages 197-224, March.
- Barro, Robert J., 1981.
"Output Effects of Government Purchases,"
3451294, Harvard University Department of Economics.
- Aschauer, David Alan & Greenwood, Jeremy, 1985. "Macroeconomic effects of fiscal policy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 23(1), pages 91-138, January.
- Grier, Kevin B. & Tullock, Gordon, 1989. "An empirical analysis of cross-national economic growth, 1951-1980," Journal of Monetary Economics, Elsevier, vol. 24(2), pages 259-276, September.
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