IDEAS home Printed from
   My bibliography  Save this paper

What goes up must come down -- cyclicality in public wage bill spending


  • Eckardt, Sebastian
  • Mills, Zachary


This paper analyzes the cyclicality of public sector wage bill spending in Europe and Central Asia and assesses the impact of wage bill spending on fiscal discipline before, during, and after the global financial crisis of 2008/09. While there are important differences across countries, the results show that public sector wage bill spending tends to behave strongly pro-cyclically, especially in transition economies. Moreover, while wage bill spending is pro-cyclical during both good and bad times, adjustments during economic downturns tend to be sharper than expansions during periods of economic booms. In addition, there is evidence of political cycles, with stronger wage bill growth in pre-election periods. Finally, the analysis reveals that while the size of the wage bill does not seem to systematically affect fiscal discipline across countries, expansions within countries over time are associated with deteriorating fiscal positions. These findings provide a strong impetus for public wage and employment policies that aim to restrain excessive growth of the wage bill during boom periods. This prospective management of the wage bill would not only reduce the need for painful adjustments during periods of fiscal consolidation, but also contribute to strengthening the overall countercyclical and stabilizing impact of fiscal policies.

Suggested Citation

  • Eckardt, Sebastian & Mills, Zachary, 2014. "What goes up must come down -- cyclicality in public wage bill spending," Policy Research Working Paper Series 6760, The World Bank.
  • Handle: RePEc:wbk:wbrwps:6760

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Brender, Adi & Drazen, Allan, 2005. "Political budget cycles in new versus established democracies," Journal of Monetary Economics, Elsevier, vol. 52(7), pages 1271-1295, October.
    2. David Roodman, 2009. "How to do xtabond2: An introduction to difference and system GMM in Stata," Stata Journal, StataCorp LP, vol. 9(1), pages 86-136, March.
    3. Brender, Adi, 2003. "The effect of fiscal performance on local government election results in Israel: 1989-1998," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 2187-2205, September.
    4. Shi, Min & Svensson, Jakob, 2006. "Political budget cycles: Do they differ across countries and why?," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1367-1389, September.
    5. Matz Dahlberg & Eva Mörk, 2011. "Is There an Election Cycle in Public Employment? Separating Time Effects from Election Year Effects," CESifo Economic Studies, CESifo, vol. 57(3), pages 480-498, September.
    6. Albert Alesina & Stephan Danninger & Massimo Rostagno, 2001. "Redistribution Through Public Employment: The Case of Italy," IMF Staff Papers, Palgrave Macmillan, vol. 48(3), pages 1-2.
    7. Lamo, Ana & Schuknecht, Ludger & Pérez, Javier J., 2008. "Public and private sector wages: co-movement and causality," Working Paper Series 963, European Central Bank.
    8. Schuknecht, Ludger, 2000. "Fiscal Policy Cycles and Public Expenditure in Developing Countries," Public Choice, Springer, vol. 102(1-2), pages 115-130, January.
    9. Grigoli, Francesco & Mills, Zachary & Verhoeven, Marijn & Vlaicu, Razvan, 2012. "MTEFs and fiscal performance: panel data evidence," Policy Research Working Paper Series 6186, The World Bank.
    10. Pablo Hernández de Cos & Enrique Moral-Benito, 2013. "What drives a successful fiscal consolidation?," Applied Economics Letters, Taylor & Francis Journals, vol. 20(8), pages 748-753, May.
    11. Bermperoglu, Dimitrios & Pappa, Evi & Vella, Eugenia, 2013. "Spending-based austerity measures and their effects on output and unemployment," CEPR Discussion Papers 9383, C.E.P.R. Discussion Papers.
    12. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
    13. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
    Full references (including those not matched with items on IDEAS)


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

    Cited by:

    1. World Bank, 2015. "Realigning the Union Budget to Myanmar’s Development Priorities," World Bank Other Operational Studies 24068, The World Bank.

    More about this item


    Currencies and Exchange Rates; Public Sector Expenditure Policy; Public Sector Economics; Labor Markets; Public Sector Management and Reform;

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    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:6760. 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: .

    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.