The Fiscal Vulnerability of Social Public Expenditure: Is Latin America Different?

This paper uses a panel of 50 countries for the period 1985-2003 to evaluate the vulnerability of public social spending (on education and health) to fiscal variables and public debt in Latin America as compared with the rest of the developing world. Social spending is significantly lower in Latin America (although it absorbs a larger proportion of primary spending) and is more vulnerable to higher debt interest payments but less affected by variations in other public spending. As in other developing countries, social spending declines as public debt increases, and more so if the debt is with multilateral banks. Unlike the rest of the world, when Latin American fails to meet its debt payments, social spending declines as a share of total public spending.