Abstract
Summary This paper presents the results of a meta-regression analysis of the relationship between government spending and income poverty, with a focus on low- and middle-income countries. Through a comprehensive search and screening process, we identify a total of 19 cross-country econometric studies containing 169 estimates of this relationship. We find that the size and direction of the estimated relationship are affected by a range of factors, most notably the composition of the sample used for estimation, the control variables included in the regression model, and the type of government spending. Overall, we find no clear evidence that higher government spending has played a significant role in reducing income poverty in low- and middle-income countries. This is consistent with the view that fiscal policy plays a much more limited redistributive role in developing countries, in comparison with OECD countries. In addition, we find that the relationship between government spending and poverty is on average less negative for countries in Sub-Saharan Africa, and more negative for countries in Eastern Europe and Central Asia, compared to other regions. We also find that the relationship is less negative for government consumption spending, in comparison with other sectors. Finally, we find some evidence indicating the possibility of publication bias.
Highlights
In September 2015, the United Nations announced a new target to eradicate extreme poverty by 2030, as measured by the number of people living on less than $1.25-a-day
The most robust evidence points to three sets of factors: the regional composition of the sample used for estimation, the control variables included in the regression model, and the type of government spending
We focus on the role of government spending, on the grounds that decisions with respect to its level and allocation are widely considered to play a central role in shaping income distribution, and generating a pattern of growth that is effective in reducing poverty – even though it is clearly not the only factor
Summary
In September 2015, the United Nations announced a new target to eradicate extreme poverty by 2030, as measured by the number of people living on less than $1.25-a-day. If there is no change in the distribution of income within countries, the global $1.25-a-day headcount is projected to remain at between 5 and 7 percent in 2030, even under fairly optimistic assumptions regarding rates of economic growth (Lakner et al, 2014; Yoshida et al, 2014; World Bank, 2015a,b). Ravallion 2001, Verschoor and Kalwij 2006, Son and Kakwani 2008) Within this debate, the level and allocation of government spending is often argued to be one key influence. Kraay (2006) finds that the effect of government consumption spending on the ‘redistribution’ component of $1-a-day poverty reduction is not statistically significant, while the effect on the ‘growth’ component is positive.1 Wagle (2012) finds that the size and significance of the effect of government consumption spending on income poverty varies substantially, according to the sample and specification used
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