Public Debt and Social Expenditure: Friends or Foes?
This paper assesses the effects of total public debt (external and domestic) on social expenditure worldwide and in Latin America using an unbalanced panel of around 50 countries for the period 1985-2003. The most robust and important finding is that higher debt ratios do reduce social expenditures, as popular opinion holds. This effect comes mostly from the stock of debt and not from debt service payments, indicating that debt displaces social expenditures not so much because it raises the debt burden, but because it reduces the room (or the appetite) for further indebtedness. Loans from multilateral organizations like the World Bank or the Inter-American Development Bank do not seem to ameliorate the adverse consequences of debt on social expenditures. In accordance with popular wisdom, our results indicate that defaulting on debt obligations does help to increase social expenditures. Nonetheless, Latin America is different in some respects. The adverse effects of debt and debt-interest payments are significantly stronger in the region, which makes defaults more beneficial to social expenditures. While many of these conclusions are very heterodox, their main policy implication is not; there is no better way to protect social expenditures than to avoid overindebtedness, especially in Latin America.
|Date of creation:||May 2006|
|Contact details of provider:|| Postal: 1300 New York Avenue, NW, Washington, DC 20577|
Web page: http://www.iadb.org/res
More information through EDIRC
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.:
- Yeyati, Eduardo Levy & Panizza, Ugo, 2011.
"The elusive costs of sovereign defaults,"
Journal of Development Economics,
Elsevier, vol. 94(1), pages 95-105, January.
- Ugo Panizza & Eduardo Levy Yeyati, 2006. "The Elusive Costs of Sovereign Defaults," Research Department Publications 4485, Inter-American Development Bank, Research Department.
- Ugo Panizza & Eduardo Levy Yeyati, 2006. "The Elusive Costs of Sovereign Defaults," IDB Publications (Working Papers) 1584, Inter-American Development Bank.
- Dany Jaimovich & Ugo Panizza, 2010. "Public debt around the world: a new data set of central government debt," Applied Economics Letters, Taylor & Francis Journals, vol. 17(1), pages 19-24, January.
- Dany Jaimovich & Ugo Panizza, 2006. "Public Debt around the World: A New Dataset of Central Government Debt," Research Department Publications 4461, Inter-American Development Bank, Research Department.
- Dany Jaimovich & Ugo Panizza, 2006. "Public Debt around the World: A New Dataset of Central Government Debt," IDB Publications (Working Papers) 1580, Inter-American Development Bank.
- Mahdavi, Saeid, 2004. "Shifts in the Composition of Government Spending in Response to External Debt Burden," World Development, Elsevier, vol. 32(7), pages 1139-1157, July.
- Mauro, Paolo, 1998. "Corruption and the composition of government expenditure," Journal of Public Economics, Elsevier, vol. 69(2), pages 263-279, June.
- Gupta, Sanjeev, 2000. "Social issues in IMF: supported programs," Sede de la CEPAL en Santiago (Estudios e Investigaciones) 34725, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
- Ritha S. Khemani & Sanjeev Gupta & Calvin A McDonald & Louis Dicks-Mireaux & Marijn Verhoeven, 2000. "Social Issues in IMF-Supported Programs," IMF Occasional Papers 191, International Monetary Fund. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:idb:wpaper:4465. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Felipe Herrera Library)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.