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Inflation targeting and the composition of public expenditure: Evidence from developing countries

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  • Ablam Estel Apeti

    (LEO - Laboratoire d'Économie d'Orleans [2022-...] - UO - Université d'Orléans - UT - Université de Tours - UCA - Université Clermont Auvergne, UCA - Université Clermont Auvergne)

  • Jean-Louis Combes

    (LEO - Laboratoire d'Économie d'Orleans [2022-...] - UO - Université d'Orléans - UT - Université de Tours - UCA - Université Clermont Auvergne, UCA - Université Clermont Auvergne)

  • Alexandru Minea

    (LEO - Laboratoire d'Économie d'Orleans [2022-...] - UO - Université d'Orléans - UT - Université de Tours - UCA - Université Clermont Auvergne, ICUB - Research Institute of the University of Bucharest - UniBuc - University of Bucharest, Carleton University)

Abstract

An important literature shows that inflation targeting (IT) adoption improves fiscal discipline. Our impact assessment analysis performed in a large sample of 89 developing countries over three decades shows that this favorable impact covers a composition effect: IT adoption is found to reduce more current expenditure compared with public investment in IT countries relative to non-IT countries. This finding is robust to various alternative specification, related to the structure of the sample, the measurement of the IT regime, or the estimation method. Consequently, aside from its acknowledged benefits for monetary policy goals, IT appears as an efficient tool to strengthen fiscal policy in developing countries towards lower and more productive public expenditure.

Suggested Citation

  • Ablam Estel Apeti & Jean-Louis Combes & Alexandru Minea, 2023. "Inflation targeting and the composition of public expenditure: Evidence from developing countries," Post-Print hal-04072840, HAL.
    • Handle: RePEc:hal:journl:hal-04072840
    DOI: 10.1016/j.jmacro.2023.103523
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    Cited by:

    1. Apeti, Ablam Estel & Combes, Jean-Louis & Minea, Alexandru, 2024. "Inflation targeting and fiscal policy volatility: Evidence from developing countries," Journal of International Money and Finance, Elsevier, vol. 141(C).
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    3. Bambe, Bao-We-Wal & Combes, Jean-Louis & Kaba, Kabinet & Minea, Alexandru, 2024. "Inflation targeting and firm performance in developing countries," Journal of Economic Dynamics and Control, Elsevier, vol. 163(C).
    4. Omid M. Ardakani & N. Kundan Kishor & Suyong Song, 2024. "Does membership of the EMU matter for economic and financial outcomes?," Contemporary Economic Policy, Western Economic Association International, vol. 42(3), pages 416-447, July.
    5. Apeti, Ablam Estel & Bambe, Bao-We-Wal & Combes, Jean-Louis & Edoh, Eyah Denise, 2024. "Original sin: Fiscal rules and government debt in foreign currency in developing countries," Journal of Macroeconomics, Elsevier, vol. 80(C).
    6. Bao-We-Wal Bambe, 2023. "Inflation Targeting and Private Domestic Investment in Developing Countries," Post-Print hal-04227639, HAL.

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    More about this item

    Keywords

    Inflation targeting; Composition effect of public expenditure; Impact analysis; Current expenditure; Public investment;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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