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

Author/Editor:

Santiago Acosta Ormaechea ; Atsuyoshi Morozumi

Publication Date:

July 8, 2013

Electronic Access:

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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:

Economic growth Economic models Expenditure composition Fiscal policy Government expenditures

English

Publication Date:

July 8, 2013

ISBN/ISSN:

9781475550597/1018-5941

Stock No:

WPIEA2013162

Format:

Paper

Pages:

45

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