IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/1869.html
   My bibliography  Save this paper

Risk reduction and public spending

Author

Listed:
  • Devarajan, Shantayanan
  • Hammer, Jeffrey S.

Abstract

As governments grow richer, the share of their GDP devoted to public spending rises. Public spending in the United States was 7.5 percent of GDP in 1913. It is 33 percent today. Although industrial countries spend twice as much as developing countries, government spending on goods and services is the same in both groups of countries. The difference is almost entirely due to transfer payments, which are about 22 percent of GDP in the industrial world. Most of these transfer payments - pensions, health insurance, unemployment insurance, guaranteed loans- are aimed at mitigating risk in the private sector The authors explore how the framework for evaluating government spending on goods and services can be extended to incorporate the government's various risk-reducing activities. The authors argue that there is a case for incorporating risk reduction into government spending, if doing so meets standard welfare-economics criteria for government intervention in the economy. Through examples - government-provided health insurance and crop insurance, price stabilization schemes, transfer programs for income support, public investments, publicly provided health care, and government credit guarantees - they show where government spending on risk reduction could improve welfare, by either alleviating a failure in risk markets or by reducing uncertainty in otherwise distorted markets. They illustrate calculations of the risk-reduction benefits of public spending and cite cases where their neglect could lead to serious underestimates.

Suggested Citation

  • Devarajan, Shantayanan & Hammer, Jeffrey S., 1998. "Risk reduction and public spending," Policy Research Working Paper Series 1869, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1869
    as

    Download full text from publisher

    File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/1998/01/01/000009265_3980219162709/Rendered/PDF/multi_page.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Hammer, Jeffrey S, 1997. "Economic Analysis for Health Projects," World Bank Research Observer, World Bank Group, vol. 12(1), pages 47-71, February.
    2. Tanzi, Vito & Schuknecht, Ludger, 1997. "Reconsidering the Fiscal Role of Government: The International Perspective," American Economic Review, American Economic Association, vol. 87(2), pages 164-168, May.
    3. Donald Cox & Emmanuel Jiminez, 1993. "Private Transfers And The Effectiveness Of Public Income Redistribution In The Philippines," Boston College Working Papers in Economics 236, Boston College Department of Economics.
    4. Michael Rothschild & Joseph Stiglitz, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, Oxford University Press, vol. 90(4), pages 629-649.
    5. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    6. Lant Pritchett, 1997. "Divergence, Big Time," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 3-17, Summer.
    7. Arrow, Kenneth J & Lind, Robert C, 1970. "Uncertainty and the Evaluation of Public Investment Decisions," American Economic Review, American Economic Association, vol. 60(3), pages 364-378, June.
    8. Bruce C. Greenwald & Joseph E. Stiglitz, 1986. "Externalities in Economies with Imperfect Information and Incomplete Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 229-264.
    9. Alderman, Harold & Lavy, Victor, 1996. "Household Responses to Public Health Services: Cost and Quality Tradeoffs," World Bank Research Observer, World Bank Group, vol. 11(1), pages 3-22, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Dailami, Monsoor, 2000. "Financial openness, democracy, and redistributive policy," Policy Research Working Paper Series 2372, The World Bank.
    2. World Bank, 2001. "Brazil - Public Expenditures for Poverty Alleviation in Northeast Brazil : Promoting Growth and Improving Services," World Bank Other Operational Studies 15510, The World Bank.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:1869. 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: (Roula I. Yazigi). General contact details of provider: http://edirc.repec.org/data/dvewbus.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.