Determinants of social spending in Latin America during and after the Washington consensus: a dynamic panel error-correction model analysis

Fernando Martín-Mayoral,Juan Fernández Sastre

doi:10.1007/s40503-017-0053-6

Fernando Martín-Mayoral, Juan Fernández Sastre

Open Access

https://doi.org/10.1007/s40503-017-0053-6

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Abstract

This paper examines the determinants of social spending in Latin America during the period 1990–2012 and how they differed between the years of the Washington Consensus (1990–2000) and the period that followed (2001–2012). Special attention is also paid to the evaluation of convergence towards a common upper-bounded steady state (absolute beta convergence) or to specific steady states conditioned by their country’s specific determinants (conditional beta convergence). We estimate a panel error-correction version of an autoregressive distributed lag model to identify the long-term relationships between social expenditure and its determinants. Generalised methods of moments estimators are used to control the endogeneity of the regressors. Results indicate that Latin American social spending follows a conditional beta convergence process over the Washington consensus period that was mainly driven by structural differences in fiscal burdens and external debt, while during the second period it was explained by conjunctural differences in the fiscal burden, GDP per capita and the growth of trade and capital openness.

Highlights

The reduction of poverty and inequality as well as the promotion of human performance and capabilities has become of increasing interest in the economic development debate (Sen 1982)
This paper examines the determinants of social spending in Latin America during the period 1990–2012 and how they differed between the years of the Washington Consensus (1990–2000) and the period that followed (2001–2012)
Results indicate that Latin American social spending follows a conditional beta convergence process over the Washington consensus period that was mainly driven by structural differences in fiscal burdens and external debt, while during the second period it was explained by conjunctural differences in the fiscal burden, GDP per capita and the growth of trade and capital openness

Summary

Introduction

The reduction of poverty and inequality as well as the promotion of human performance and capabilities has become of increasing interest in the economic development debate (Sen 1982). At the same time, improving education, health, sanitation and other social services has become a priority for the governments (Suescun 2007). In this context, two separate questions have attracted the interest of policymakers and researchers. The second deals with the analysis of the determinants of social expenditure levels and their growth, as they have a direct influence on human development. This paper belongs to the second group of studies, as it examines the factors that influence convergence in social spending across 17 Latin American countries for the period 1990–2012.1

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