Expenditure Composition, Fiscal Adjustment, and Growth in Low-Income Countries

By Benedict J. Clements, Sanjeev Gupta, Emanuele Baldacci, Carlos Mulas-Granados

April 1, 2002

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Benedict J. Clements, Sanjeev Gupta, Emanuele Baldacci, and Carlos Mulas-Granados. Expenditure Composition, Fiscal Adjustment, and Growth in Low-Income Countries, (USA: International Monetary Fund, 2002) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper assesses the effects of expenditure composition as well as fiscal adjustment on economic growth in a sample of 39 low-income countries during the 1990s. The paper finds that strong budgetary positions and fiscal consolidation are generally associated with higher economic growth in both the short and long terms. The composition of public outlays also matters: Countries where spending is concentrated on wages tend to have lower growth, while those that allocate higher shares to capital and nonwage goods and services enjoy faster output expansion. Expenditure composition, along with the size of the fiscal consolidation and initial fiscal conditions, affects the sustainability of adjustment. Initial fiscal conditions also have a bearing on the nexus between fiscal deficits and growth.

Subject: Expenditure, Expenditure composition, Fiscal consolidation, Fiscal policy, Revenue administration

Keywords: B. fiscal policy, Budget deficit, Budget financing, Business cycle, Composition of expenditure, Domestic financing, Duration of Fiscal Consolidations, Economic growth, Effect of expenditure composition, Expenditure category, Expenditure composition, Expenditure item, Expenditure reallocation, Expenditure reform, Financing of the deficit, Fiscal consolidation, Fiscal Policy, Fiscal policy stance, Fiscal policy-growth nexus, Government spending, Percent of GDP, Public Expenditure Composition, WP

Publication Details

Pages:

40
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2002/077
Stock No:

WPIEA0772002
ISBN:

9781451850000
ISSN:

1018-5941

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