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Can a Government Enhance Long-run Growth by Changing the Composition of Public Expenditure?

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  • Santiago Acosta-Ormaechea
  • Atsuyoshi Morozumi

Abstract

This paper examines the impact of a compositional change in public expenditure on long-run growth. To do this, we construct a new dataset based on the IMF's government finance statistics (GFS) yearbook covering the period 1970-2010 for 56 countries (14 low-, 16 medium-, and 26 high-income countries). We then study the causal effects of changes in the composition of expenditure on growth using generalized-method-of-moments (GMM) dynamic panel estimators. Our main nding is that a government can promote long-run growth by increasing education spending offset by a fall in social spending (i.e., health and social protection). An increase in public spending on infrastructure, however, does not appear to enhance growth when compensated by a fall in spending on other components, most notably education and social spending.

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  • Santiago Acosta-Ormaechea & Atsuyoshi Morozumi, 2013. "Can a Government Enhance Long-run Growth by Changing the Composition of Public Expenditure?," Discussion Papers 2013/01, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  • Handle: RePEc:not:notcfc:13/01
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    File URL: http://www.nottingham.ac.uk/cfcm/documents/papers/13-01.pdf
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    1. repec:nos:voprec:2017-09-1 is not listed on IDEAS
    2. repec:eee:jeborg:v:137:y:2017:i:c:p:145-159 is not listed on IDEAS
    3. repec:eee:rujoec:v:3:y:2017:i:3:p:221-239 is not listed on IDEAS

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