Composition Of Government Expenditure Research Articles

Can aging population affect economic growth through the channel of government spending?

The demographic transition toward an aging society is a global phenomenon. An increase in the aging population directly challenges the government positions and public expenditures as it directly affects a country's aggregate demand and, thus, the country's income level. This paper investigates the impact of an aging population on the size of government spending. Using an updated dataset of 87 countries from 1996 to 2017, we study the aggregate level and each composition of government expenditures. Furthermore, we investigate whether the aging population influences the allocation of government spending toward different categories and economic growth changes. The paper uses the generalized method of moment (GMM) model for the dynamic panel data analysis to address the endogeneity problem. Our main findings suggest that an increase in the old-age population significantly induces higher aggregate government spending but only in developed countries and in particular on the spending in the social protection and environment categories. However, the aging society leads to lower government expenditure on education. Other critical findings reveal that changes in some compositions of government spending toward cultural expenditures impact growth slowdown, while an allocation toward education spending positively impacts economic growth.

Relevansi Skala Optimum Belanja Pemerintah terhadap Pertumbuhan Ekonomi dan Financial Distress Kabupaten/Kota di Provinsi Maluku

This research attempts to evaluate the impact of optimum government size to economic growth and the government financial distress in districts of Maluku. The government size would intuitively drive economic growth. Especially in the eastern hemisphere of Indonesia which has lower economic activity compared to other regions. Furthermore, the bigger government size would increase the government's financial distress, since the income could not cover the mandatory spending and long term liabilities. The evidence of this research shows that the government size does not significantly impact both the per capita regional GDP and financial distress of the districts in Maluku. However, the level of private sector investment is significant in forming the per capita regional GDP and the level of liabilities would affect the level of government financial distress. The results also demonstrate the importance of government expenditure composition, especially mandatory spending, that may be considered as the significant factors that impact overall economy and the local government financial condition.

Fiscal Decentralization and the Composition of Local Government Expenditure: Evidence from South Korea

The implicit idea underlying theories of fiscal federalism is that fiscal decentralization can change the composition of government expenditure. That is, regardless of whether decentralization enables governments to more readily reflect citizen preferences regarding spending categories or fosters a race to the bottom with reduced taxation and public service levels, change in the composition of government expenditure may ensue. This study indirectly tests the impact of decentralization with respect to allocative efficiency by examining the relationship between fiscal decentralization and expenditure composition. Utilizing data from 224 local governments in South Korea over the period 2008–2018, the study finds that fiscal decentralization exerts downward pressure on welfare expenditure and that it tends to shift spending from the current to the capital account. Specifically, it finds that it is mainly revenue-side decentralization that affects the allocation of government expenditure.

Oil bonanza and the composition of government expenditure

Government behavior can be affected by natural resource benefits. Benevolent government and political leaders may use them to improve the welfare of the people, whereas others may use them for their own interests. To examine the effects of oil bonanza on government behavior comprehensively, this study investigates how giant oilfield discoveries affect the size and composition of government expenditure using data from 168 countries between 1972 and 2008. We find weak evidence that giant oilfield discoveries increase total government expenditure significantly in the medium and long term, whereas their effects are more evident in the short term, especially when controlling for other factors affecting total government expenditure. We also obtain evidence that democracy plays a mediating role in these effects; if the democracy level in a country is consolidated, the size of total government spending does not increase even when discovering giant oilfields. Considering each category of government expenditure, giant oilfield discoveries increase expenditure on health and social protection significantly, whereas they decrease educational expenditure. Furthermore, giant oilfield discoveries decrease expenditure on economic affairs and defense and increase general public services and public order and safety. Finally, giant oilfield discoveries increase the net implicit gasoline subsidy in the long term. These findings enhance our understanding of the effects of oil bonanza on government behavior.

Fiscal Deficit and Economic Growth Nexus in India: A Simultaneous Error Correction Approach

This paper examines the impact of fiscal deficit on economic growth in India, during the period from 1970–71 to 2018–19. Using a combination of Autoregressive Distributed Lag and Simultaneous Error Correction Approach, this study shows that fiscal deficit and revenue deficit have an adverse effect on economic growth both in the long run and in the short run. The empirical analysis confirms that fiscal deficit influences economic growth both directly, and indirectly through the routes of investment, interest rate, current account deficit and composition of government expenditure. Further, gross investment has a positive and inflation rate has a negative impact on economic growth. For a policy perspective, the government should control fiscal deficit and revenue deficit as suggested by the FRBM Act. The composition of government expenditure should be altered to devote more resources for the formation of productive capital in India.

Endüstri 4.0 ve Kamu Maliyesinde Dönüşüm: Kamu Harcamaları Açısından Bir Değerlendirme

Dördüncü sanayi devrimi (Endüstri 4.0) ekonomiler ve toplumların dönüşümü için büyük bir potansiyel sunmaktadır. Hükümetler Endüstri 4.0 ve temelini oluşturan teknolojilere sadece ayak uydurmakla değil aynı zamanda bu dönüşümü yönetmekle yükümlüdür. Bu çalışmanın amacı söz konusu olgunun kamu maliyesi üzerindeki olası etkilerinin, kamu politikalarında karar alma süreci ile kamu harcamalarının miktar ve bileşimi açısından değerlendirilmesidir. Sanayi devriminin önceki aşamaları ve yeni dönemin ayırt edici özellikleri dikkate alınarak yapılan değerlendirmeler ışığında Endüstri 4.0 olgusunun kamu harcamalarının ekonomik sınıflandırmasında; cari harcamaların toplam kamu harcamaları içerisindeki oranında azalma, sosyal ve iktisadi transfer harcamalarının payında artışa neden olacağı, yatırım harcamalarının ise bileşimini değiştirme potansiyeli olduğu sonucuna ulaşılmıştır.

Public Preferences for Government Spending Priorities: Survey Evidence from Germany

Abstract Employing data from a representative survey conducted in Germany, this paper examines public preferences for the size and composition of government expenditure. We focus on public attitudes towards taxes, public debt incurrence and public spending in six different policy areas. Our findings suggest, first, that individual preferences for the use of additional tax money can be categorised as either capital-oriented expenditure or public debt reduction. Second, we find that fiscal preferences differ along various dimensions. Specifically, personal economic well-being, economic literacy, confidence in politicians, political ideology and time preference are significantly related to individual attitudes towards public spending, taxes and debt. The magnitude of the effects is particularly large for time preference, economic knowledge and party preference. Third, public preferences for public spending priorities are only marginally affected when considering a public budget constraint.

Rural and agricultural subsidies in Latin America: Development costs of misallocated public resources

AbstractMotivationThe tendency of governments to surrender to interest groups and divert resources to agricultural subsidies calls into question the efficiency of rural public spending as a tool to promote agricultural growth and rural development: the displacement of government expenditures on public goods by subsidies to private goods hinders farm sector performance.PurposeThis uses an expanded dataset of rural and agricultural spending in Latin America to examine the effect of the composition of government expenditures on rural wellbeing. Furthermore, the article tests whether it is the composition of rural spending more generally or spending on agriculture specifically which drives these impacts.Approach and methodsEconometric panel data methods are used to assess and quantify the relationship between the composition of rural and agricultural spending and sectoral performance. Additionally, the article tests and corrects for the endogeneity of the examined policies and agricultural performance.FindingsThe results show that the composition of agricultural expenditures significantly impacts the sector’s evolution. We confirm that diverting taxpayer funds from public goods to subsidies decreases farm sector performance.Policy implicationsLarge gains are to be had from a redistribution of rural (and particularly agricultural) spending from subsidies to public goods. Without addressing this misallocations, the argument to promote rural spending and reduce urban bias in government policies is undermined.

Effect of Public Spending on Economic Growth in Kenya

This study aimed at examining the relationship between public spending and economic growth and how the composition of government expenditure affects economic growth in Kenya using time series data from 1980 to 2014. To achieve the objectives, modified Granger causality and Autoregressive Distributed Lag model (ARDL) were used. The results revealed both short term and long term causality from economic growth to government expenditure but only short run causality from government expenditure to economic growth. Based on the economic classification, the long run ARDL regression results showed development expenditure promotes economic growth while government purchases have no significant effect on GDP. Other control variables such as inflation and unemployment had negative effect on economic growth. In terms of functional classification, the regression results showed that expenditure on education and infrastructure are important drivers of economic growth. The positive effect of health expenditure was not significant. Further, the regression results indicated that domestic savings and trade openness had significant positive effect on economic growth. Based on the empirical findings this study therefore recommends resources to be directed towards financing public infrastructure investment to improve economic performance. The study also recommends increasing resource allocation in the education sector to improve efficiency and support skills and human capital development that are important in promoting economic growth through increases in labor productivity. The study also recommends policymakers to enhance domestic resource mobilization and pursue favorable trade policies aimed at fostering robust economic growth.

Financial development and the composition of government expenditure: Theory and cross-country evidence

This paper explores the effect of financial development on the composition of government expenditure. We establish an endogenous growth model to consider the role of financial development. We demonstrate that because of the efficiency loss induced by lower financial development, private investment is constrained and hence governments tend to spend on higher productive expenditure to maintain a certain economic growth rate. Relying on a large sample of 105 countries over 1984–2009, we find supporting evidence that countries with higher financial development tend to have lower productive expenditure. This result is robust across alternative measures of the key variables and alternative estimations with and without correcting the potential endogeneity issue of financial development.

The dynamics of displacement effect in government expenditure

ABSTRACTThis study examines the dynamics of the displacement effect. Using government expenditure data from 1972 to 2006, this study finds evidence of the displacement effect in government expenditures immediately following German reunification, along with changes in both the composition of government expenditures and funding allocation authority between local and federal governments. These findings suggest that social disturbances play a significant role in determining the functional composition of government spending and have the potential to reverse the trend of fiscal decentralization.

The Impact of Government Expenditure on Economic Growth in Kenya: 1963-2008

The rapid growth in government expenditure in Kenya has caused concern among policy makers on the implication of such growth. Over the three decades, government expenditure in the country grew at a faster rate than the growth rate of GDP. Given this fiscal scenario, an explanation of this requires studying the impact of government expenditure on economic growth. The specific objectives of the study were to: investigate the relationship between the components of government expenditure and economic growth; examine the effects of components of government expenditure on GDP growth rate; analyze the effects of government expenditure reforms on economic growth; and to draw policy implications from the findings. The data used were government expenditure components that included expenditure on government investment, physical infrastructure, education, health care, public debt servicing, economic affairs, general administration and services, defense, public order and national security, and government consumption. Sources of data were Kenya government documents and international financial statistics publications. The study applied Vector Auto Regression estimation technique using the annual time series data for the period 1963 to 2008 to evaluate the impact of government expenditure on economic growth. The Johansen cointegration tests revealed a long-run relationship between GDP growth rate and the selected components of government expenditure. Further, the Granger- Causality test indicated bi-directional causality between GDP growth rate and components of government expenditure. The results of impulse response functions and variance decomposition revealed that government expenditure on investment, physical infrastructure, education, health care, public debt servicing, economic affairs, general administration and services, defense, public order and national security and government consumption have effect on economic growth. Furthermore, the study established that expenditure reforms of budget rationalization, expenditure downsizing, privatization and governance affect economic growth. The study concludes that the composition of government expenditure and public expenditure reforms matter for economic growth.

Growth and Fiscal Consequences of Terrorism in Nigeria

In spite of government counter-terrorism expenditure and efforts, the incidence of terrorism in Nigeria appears to be rising. This paper examines the growth and fiscal consequences of terrorism in Nigeria by estimating the terrorism–macroeconomy relation using different measures of terror incidence. The results show that terrorism has an economically and statistically significant negative impact on growth; although this impact is considerably small and short-lived, manifesting only after a lag of about three years. Specifically, the cost of terrorism to Nigeria, in terms of lost GDP per annum, is estimated at 0.82%. Moreover, there is evidence that terrorism leads to the reallocation of economic activity away from private investment spending to government spending; that is, terrorism crowds out investment at a higher rate than its potential to crowd in government spending. Lastly, terrorism alters the composition of government expenditure – with the defence component of government expenditure rising vis-a-vis other expenditure items. The results are robust to allowing for dynamic interactions between terrorism and macroeconomic aggregates.

Russian defense spending after 2010: the interplay of personal, domestic, and foreign policy interests

Since 2010, Russia’s defense spending has seen an average annual real growth of 10%, causing a profound shift in the composition of government expenditure. This article examines the formal and informal processes through which Russia’s level of defense spending is determined and identifies personal, domestic, and foreign policy interests behind the rise in defense expenditures. Drawing on a combination of elite interviews and document and news analyses, I argue that domestic political and socioeconomic factors are at least as important as geopolitical and security ones in explaining Russia’s decision to push defense to the forefront of the political agenda. The findings suggest that high levels of defense spending may be politically sustainable in Russia, at least in the medium term, even though it comes at the cost of other public goods.

How does democratization affect the composition of government expenditure?

This study examines the effects of democratization on the size and composition of government expenditure using the data of 125 countries between 1972 and 2010 at most. Specifically, we focus not only on the total expenditure but also on the composition, and we employ dichotomous indices of political regimes rather than score indices. Moreover, we construct instruments for democratization based on the democratization wave and conduct an instrumental variables estimation to address endogeneity problems. Our results show that while democratization does not have a significant impact on total expenditure, it increases expenditure on health. Democratization decreases expenditure on defense, although the result of the instrumental variables estimation is not significant. Furthermore, considering the time-varying effect of democratization, defense expenditure starts decreasing immediately after a regime change and health expenditure increases in the medium and long run, while they do not significantly vary before a regime change. Thus, while focusing only on total expenditure does not uncover the effects of democratization, considering detailed categories of government expenditure enables us to understand how democratization changes governments’ behaviors.

Government expenditure composition and fiscal policy spillovers in small open economies within a monetary union

We examine the implications of government expenditure that is complementary to private consumption, and government investment that can improve the productivity of private capital, in a global DSGE model. We show that government investment can improve an economy’s external competitiveness and stimulate private investment. If governments can finance this investment by reducing consumption that is not complementary to private consumption, then this is ex-ante budget-neutral, provides a small, but persistent stimulus without a deterioration in competitiveness, and leads to lower debt in the medium run. We also examine the cross-border transmission channels of government expenditure shocks in a monetary union when government consumption is complementary to private and public investment is productive. While both assumptions enhance cross-border spillovers, a direct import content is required to generate spillovers similar to those found in the empirical literature.

Corruption, Foreign Direct Investment, and International Marketing in the Western Balkans

Corruption is one of the major issues the Western Balkans is facing, challenging both domestic and foreign companies in doing business. This article examines the role of corruption in hindering foreign direct investment (FDI) in the Western Balkans during the 1992–2012 time frame, using generalized method of moments (GMM) estimations applied to dynamic panel data. The empirical data point to the negative role of corruption for the attraction of FDI to the Western Balkans. This research also suggests that corruption is negatively related with the income level in the region, where countries suffering higher levels of corruption have lower incomes per capita. The other channels in which corruption hinders economic development in the Western Balkans include distorted composition of government expenditure, negative current account balances, tax evasion, lack of competitiveness, and low levels of economic innovation. This article suggests that engaging in international marketing is the best way for the Western Balkans to increase economic competitiveness, improve skills, advance levels of technology, and reduce levels of corruption. © 2015 Wiley Periodicals, Inc.

Fiscal equalization, government expenditures and endogenous growth

This paper analyzes the effect of a fiscal equalization system on the composition of government expenditures of subnational governments. We incorporate vertical equalization transfers with optimal choice of the composition of government expenditures in an endogenous growth model and show that such transfers reduce the incentives of recipient subnational governments to undertake productive expenditures. Using data for Canadian provinces, we find evidence that, after controlling for a number of determinants of government expenditures, the ratio of productive expenditures to total government expenditures was lower in equalization-receiving than non-receiving provinces.

The impact of within-party and between-party ideological dispersion on fiscal outcomes: evidence from Swiss cantonal parliaments

The impact of the fragmentation of executive and legislative bodies on the level and composition of government expenditure is a feature of politics that has attracted considerable attention from economists. However, previous authors have abstracted from two important concepts: ideology and intra-party politics. In this paper, we account for these two phenomena explicitly, and make two main contributions. First, we show that both intra- and inter-party ideological dispersion matter in explaining the level of sub-national public spending. Therefore, it is improper to consider parties as monolithic entities. We also show that ideological dispersion matters especially for current expenditures, and not so much for investment expenditures. To do so, we construct a panel database (2003–2010) comprising data from a survey that quantifies the policy preferences of party members who were candidates in Swiss elections.

Public infrastructure investment and fiscal sustainability in Latin America: incompatible goals?

Purpose– This paper aims to understand the relationship in developing countries between fiscal consolidation and public investment – a flexible part of the budget that is easier to cut during consolidation effort, but with potentially negative growth effects. Analyzing in detail the case of Peru, the paper explores alternative fiscal rules and frameworks that might help create fiscal space for infrastructure investment.Design/methodology/approach– The paper analyses trends in public and total infrastructure investment in six large Latin American economies, in the light of fiscal developments since the early 1980s. In particular, the paper explores the association between fiscal consolidations (improvements in the structural fiscal balance) and public infrastructure investment rates. In the second part, the paper analyzes recent changes in the fiscal framework of Peru and shows how they were conductive in creating additional fiscal space.Findings– The authors argue that post-crisis fiscal frameworks, notably fiscal rules that are increasingly popular in the region, should not only consolidate the recent progress towards debt sustainability, but also create the fiscal space to close these infrastructure gaps. These points are illustrated in a detailed account of recent developments in the fiscal framework and public investment in the Peruvian case.Originality/value– The paper contributes new evidence to the literature on fiscal consolidation and the composition of government expenditures. While the literature based on evidence from the 1990s has argued that fiscal consolidation plans in Latin America have almost always led to a significant reduction in public infrastructure investment, the paper finds less clear cut evidence when extending the analysis backwards (1980s) and forwards (2000s). The example of the case of Peru is used to explore fiscal institutions and rules that might be useful for other developing countries that face important infrastructure gaps.