Can a Government Enhance Long-Run Growth by Changing the Composition of Public Expenditure?

Author/Editor: Santiago Acosta Ormaechea ; Atsuyoshi Morozumi
Publication Date: July 08, 2013
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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 studies the effects of public expenditure reallocations on long-run growth. To do this, we assemble a new dataset based on the IMF’s GFS yearbook for the period 1970-2010 and 56 countries (14 low-, 16 medium-, and 26 high-income countries). Using dynamic panel GMM estimators, we find that a reallocation involving a rise in education spending has a positive and statistically robust effect on growth, when the compensating factor remains unspecified or when this is associated with an offsetting reduction in social protection spending. We also find that public capital spending relative to current spending appears to be associated with higher growth, yet results are non-robust in this latter case.
Series: Working Paper No. 13/162
Subject(s): Fiscal policy | Government expenditures | Economic growth | Economic models

Publication Date: July 08, 2013
ISBN/ISSN: 9781475550597/1018-5941 Format: Paper
Stock No: WPIEA2013162 Pages: 45
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