The Effect of Fiscal Policy and Selected Macroeconomic Indicators on Human Development Index: The Case for OECD Countries

Abstract

The discrepancies in the development levels among countries stem from plentiful factors such as unfair distribution of income, inqualities in the access of education, health and technology as well as exposure to violence and gender inequalities. All of these factors distrupt social cohesion and interdependence and raise concerns over the efficiency of institutions and their policies which have a key role in achieving sustainable development. In conjuction with this aim, in this study it is endeavored to analyse the effect of fiscal policy tools and selected macroeconomic indicators like inflation, fixed capital investment ratio and economic growth on human development index encompassing health, education and standart of living dimensions in 34 OECD countries for the period 2000-2018. The analyses are realized with respect to development level of countires in OECD. Since cross sectional dependence, autocorrelation ad hetereskodacity problem are encountered during the analysis, Driscoll-Kraay panel data analysis is realized which is recommended in the literature. According to the outputs of the analyses, government expenditure as a proxy for expansionary fiscal policy affects the human development index positively for all groups of countries. On the other hand, public dept and budget balance have a posive effect, consumer price index has a negative effect on indices for solely developed countries and developed countires-G7. It is also deducted that economic growth deemed as a backbone for sustainable development has no statisticaly significant impact on human development index for all three group of countries.