Composition Of Government Expenditure Research Articles

Government spending, capital accumulation and the optimal policy rule: The role of public service capital

In this paper, we modify the Djajić [Djajić, S., 1987. “Government Spending and the Optimal Rates of Consumption and Capital Accumulation,” Canadian Journal of Economics 20, 544–554.] model in such a way that government consumption expenditure provides utility to households via the total stock of government services rather than the government consumption flow alone. By using such a framework, we show that the optimality condition for the public service capital stock is the marginal rate of substitution between public service capital and consumption that equals the intertemporal marginal rate of transformation between the two goods. In addition, we show that the relationship between private consumption and public service capital in a household's utility plays an important role in determining the transitional behavior of relevant variables. We also examine the second-best government consumption expenditure policy. By contrast, in the standard flow specification, e.g., Turnovsky and Brock [Turnovsky, S.J. and Brock, W.A., 1980. “Time Consistency and Optimal Government Policies in Perfect Foresight Equilibrium,” Journal of Public Economics 13, 183–212.], Ihori [Ihori, T., 1990. “Government Spending and Private Consumption,” Canadian Journal of Economics 23, 60–69.], and Turnovsky and Fisher [Turnovsky, S.J. and Fisher, W.H., 1995. “The Composition of Government Expenditure and its Consequences for Macroeconomic Performance,” Journal of Economic Dynamics and Control 19, 747–786.], the second-best government consumption expenditure is decided on the basis that the marginal utility of consumption is equal to the discounted sum of the marginal utility of the government's flow spending.

HAS EUROPEAN ECONOMIC INTEGRATION AFFECTED THE FUNCTIONAL COMPOSITION OF GOVERNMENT EXPENDITURES?

Globalization and growth‐maximizing governments may cause countries to converge toward a similar composition of government expenditures. These convergent forces may be even more intensive in the case of EU member states engaged in the European integration process. The results obtained, through calculation of a constructed dissimilarity index and by adapting the usual indicators of convergence (β, σ, and γ), reveal that there has been a harmonization process. In addition, this approximation of the structures of government expenditures has been greater in the EU than in the non‐EU countries of the OECD. Nevertheless, EU member states are converging toward a different steady‐state composition of government expenditures. (JEL H11, H50, H60)

The Impact of Globalization on the Composition of Government Expenditures: Evidence from Panel Data

According to the disciplining hypothesis, globalization restrains governments by inducing increased budgetary pressure. As a consequence, governments may attempt to curtail the welfare state, which is often seen as a drag on international competitiveness, by reducing especially their expenditures on transfers and subsidies. This globalization-induced welfare state retrenchment is potentially mitigated by citizens' preferences to be compensated for the risks of globalization (compensation hypothesis). Employing two different datasets and various measures of globalization, we analyze whether globalization has indeed influenced the composition of government expenditures. For a sample of 60 countries, we examine the development of four broad expenditure categories for the period 1971-2001: capital expenditures, expenditures for goods and services, interest payments, and subsidies and other current transfers. A second dataset provides a much more detailed classification: public expenditures, expenditures for defence, order, economic affairs, environment, housing, health, recreation, education, and social expenditures. However, this second data set is only available since 1990-and only for OECD countries. Our results show that globalization did not influence the composition of government expenditures in a notable way.

The Impact of Globalization on the Composition of Government Expenditures: Evidence from Panel Data

According to the disciplining hypothesis, globalization restrains governments by inducing increased budgetary pressure. As a consequence, governments shift their expenditures in favour of transfers and subsidies and away from capital expenditures. This expenditure shift is potentially enhanced by citizens' preferences to be compensated for the risks of globalization (compensation hypothesis). Employing two different datasets and various measures of globalization, we analyze whether globalization has indeed influenced the composition of government expenditures. For a sample of 108 countries, we examine the development of four broad expenditure categories for the period 1970-2001: capital expenditures; expenditures for goods and services; interest payments; and subsidies and other current transfers. A second dataset provides a much more detailed classification: public expenditures, expenditures for defence, order, economic environment, housing, health, recreation, education, and social expenditures. However, this second data set is only available since 1990 - and only for the OECD countries. Our results show that globalization did not influence the composition of government expenditures.

The Economic Costs of Corruption: A Survey and New Evidence

This paper reviews the empirical literature on the economic costs of corruption. Corruption affects economic growth, the level of GDP per capita, investment activity, international trade and price stability negatively. Additionally, it biases the composition of government expenditures. The second part of the paper estimates the effect of corruption on economic growth and GDP per capita as well as on six possible transmission channels. The results of this analysis allows to calculate the total effect of corruption: An increase of corruption by about one index point reduces GDP growth by 0.13 percentage points and GDP per capita by 425 US$.

Asset distribution and tertiary education expenditure in developing countries

This paper examines whether initial asset distribution affects the composition of government expenditure on education. Using a cross-section of developing countries, it is found that a country’s initial asset inequality is positively and significantly associated with the ratio of tertiary education expenditure to government education expenditure, even after controlling for some explanatory variables.

Controlling Migration in an Open Labor Market

A direct immigration policy is no longer feasiblefor a single region in a common labor market. Within apolitical economy approach, this paper focuses on the question ofwhether migration can be controlled through the composition ofgovernment expenditures. Taking into account both capital and laborincome, it turns out that the median voter's income is U-shaped in thenumber of immigrants. Therefore, the government can eitherprovide less of the goods preferred by foreigners in order to minimizeimmigration or carry out an active immigration policy byshifting its expenditures towards those publicly provided goods. Thepaper identifies the factors that determine the government'schoice between the two strategies.

The Evolution and Convergence of the Government Expenditure Composition in the OECD Countries

In the light of models of composition ofgovernment expenditure and economic growthand the growing globalization process, weinfer that countries should tend to asimilar structure of government spendingover time. In fact, using Tukey box-plotsand σ-convergence we show evidenceof an approaching process in thecomposition of government expenditures inOECD countries for the period 1970–1997. Wealso identify by means of cluster analysisthat most countries are converging towardstwo different models: one including twelveEuropean and non-European countries and theother composed solely of eight countries ofthe European Union.

Has European Integration Approximated the Composition of Government Expenditures?

Globalization and growth-maximizing governments may cause countries to converge towards a similar composition of government expenditures. These convergent forces may be even more intensive in the case of EU Member States engaged in the European integration process. The results obtained, through calculation of a constructed dissimilarity index and by adapting the usual indicators of convergence (b, s and g-convergence), reveal that there has been an harmonization process. In addition, this approach of structures of government expenditures has been greater in the EU than in the Non-EU countries of the OECD. Nevertheless, EU member states are converging towards a different steady state composition of government expenditures.

Income taxes, spending composition and long-run growth

The focus of this paper is threefold. First, it reexamines the impact on long-run growth of changes in flat-rate income taxes when a fraction of total government expenditures is used to provide public services that affect the productivity of privately held inputs. Second, for a given tax policy, this paper studies the impact of government expenditure composition on the rate of economic growth. Third, since demographics follow an overlapping generations structure and fiscal policy affects the economy's productivity, the paper features the role of productivity as a means of redistributing income across generations. The economy is analyzed numerically and policy experiments are carried out.

Composition of Government Expenditures and Demand for Education in Developing Countries

This paper addresses the potential effects on human capital accumulation and economic growth of the alternative compositions of public expenditures in the context of a computable dynamic general equilibrium model of overlapping generations and heterogeneous agents in which altruistic parents make schooling decisions for their children. In the presence of fixed and variable costs for different levels of schooling, we show that reducing household costs of primary education has the largest positive impact on growth and poverty reduction in the short run. Moreover, an increase in higher education spending increases long-run growth. These effects can be substantial even when increasing education spending comes at the expense of public infrastructure investment.

Composition of Government Expenditures and Demand for Education in Developing Countries

This paper addresses the potential effects on human capital accumulation and economic growth of the alternative compositions of public expenditures in the context of a computable dynamic general equilibrium model of overlapping generations and heterogeneous agents in which altruistic parents make schooling decisions for their children. In the presence of fixed and variable costs for different levels of schooling, we show that reducing household costs of primary education has the largest positive impact on growth and poverty reduction in the short run. Moreover, an increase in higher education spending increases long-run growth. These effects can be substantial even when increasing education spending comes at the expense of public infrastructure investment.

Lobbying, the Composition of Government Expenditures, and the Politics of Fiscal Policy

This paper constructs a one sector growth model to examine the impact of political lobbying on the formation of fiscal policy. The model predicts that lobbying can induce endogenous regime switches, development traps, and a sub‐optimal allocation of government expenditures between productive and unproductive ends, leading to long run income losses in the economy. A calibrated version of the model is used to generate estimates of the dynamic social costs of lobbying by estimating the optimal savings rates necessary to induce balanced growth in the economy. Finally, the model predicts that lobbying may influence the growth of government.

Composition of Government Expenditure, Human Capital Accumulation, and Welfare

This paper uses a dynamic general equilibrium model calibrated to Ugandan data to examine the welfare effects of alternative scenarios of government expenditure and tax financing. Two expenditure types are considered: social spending that affects human capital, and infrastructure expenditures that affect productivity. The paper finds that social expenditures lead to higher economic growth depending on the form of financing; young generations benefit most from social spending financed by consumption taxes; agents do not substitute between human and physical capital as a result of changes in expenditure composition; and improving the productivity of fiscal expenditure is both growth and welfare enhancing.

Composition of Government Expenditure, Human Capital Accumulation, and Welfare

This paper uses a dynamic general equilibrium model calibrated to Ugandan data to examine the welfare effects of alternative scenarios of government expenditure and tax financing. Two expenditure types are considered: social spending that affects human capital, and infrastructure expenditures that affect productivity. The paper finds that social expenditures lead to higher economic growth depending on the form of financing; young generations benefit most from social spending financed by consumption taxes; agents do not substitute between human and physical capital as a result of changes in expenditure composition; and improving the productivity of fiscal expenditure is both growth and welfare enhancing.

Corruption and the composition of government expenditure

This paper asks whether predatory behavior by corrupt politicians distorts the composition of government expenditure. Corruption is found to reduce government spending on education in a cross section of countries.

The Effects of Corruption on Growth, Investment, and Government Expenditure

This paper discusses the possible causes and consequences of corruption. It provides a synthetic review of recent studies that analyze this phenomenon empirically. In addition, it presents further results on the effects of corruption on growth and investment, and new cross-country evidence on the link between corruption and the composition of government expenditure.

The Effects of Corruptionon Growth, Investment, and Government Expenditure

This paper discusses the possible causes and consequences of corruption. It provides a synthetic review of recent studies that analyze this phenomenon empirically. In addition, it presents further results on the effects of corruption on growth and investment, and new cross-country evidence on the link between corruption and the composition of government expenditure.

COMPULSORY VOTING AND GOVERNMENT SPENDING

Crain and Leonard (1993) examine the effects of compulsory voting on the scale of government spending. The purpose of this comment is twofold. First, problems in the Grain and Leonard's approach are identified. The choice of government consumption, rather than expenditure, as representative of government spending is inappropriate and the classification of non‐voters as net beneficiaries of government spending is questionable. Second, the composition of government expenditure is examined. Cross‐country data tentatively suggests that voters benefit, relative to non‐voters, from government expenditures on defence and economic services while non‐voters benefit from government expenditure on health.

The composition of government expenditure and its consequences for macroeconomic performance∗

Abstract This paper employs the intertemporal optimizing market-clearing framework to compare the effects of government consumption expenditure and government infrastructure expenditure on macroeconomic adjustment and performance. Particular attention is focused on the time path of the capital stock and its adjustment to both permanent and temporary changes in government expenditure are considered. We show how the effects of both forms of government expenditure on economic welfare can be broken down into: 1. (i) a direct crowding-out effect and 2. (ii) a second component which describes the intertemporal tradeoffs between the short-run rate of capital accumulation and the resulting change in the capital stock.