Expenditure Composition, Fiscal Adjustment, and Growth in Low-Income Countries
IMF Working Papers, April 1, 2002
Source details
- Canonical URL
- Expenditure Composition, Fiscal Adjustment, and Growth in Low-Income Countries
Other formats
Bibliographic details
- Authors: Benedict J. Clements, Sanjeev Gupta, Emanuele Baldacci, Carlos Mulas-Granados
- Published: April 1, 2002
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451850000.001
Summary of purpose and scope
- Assesses the effects of expenditure composition and fiscal adjustment on economic growth.
- Sample: 39 low-income countries during the 1990s.
- Authors: Benedict J. Clements, Sanjeev Gupta, Emanuele Baldacci, Carlos Mulas-Granados.
- Publication date: April 1, 2002.
- Paper type: IMF Working Paper.
Key empirical findings
- Strong budgetary positions and fiscal consolidation are generally associated with higher economic growth in both the short and long terms.
- Expenditure composition matters for growth:
- Countries where spending is concentrated on wages tend to have lower growth.
- Countries that allocate higher shares to capital and nonwage goods and services enjoy faster output expansion.
- Expenditure composition, together with the size of the fiscal consolidation and initial fiscal conditions, affects the sustainability of adjustment.
- Initial fiscal conditions influence the relationship between fiscal deficits and growth.
Policy implications and recommendations (drawn from findings)
- Pursue budgetary consolidation to support higher short-term and long-term economic growth.
- Reorient public spending away from wage-concentrated composition toward higher shares of capital and nonwage goods and services to promote faster output expansion.
- Design fiscal consolidations with attention to initial fiscal conditions to enhance the sustainability of adjustments.
- Consider initial fiscal conditions when assessing the impact of fiscal deficits on growth and when sequencing fiscal reforms.
Content in this bundle
- Expenditure Composition, Fiscal Adjustment, and Growth in Low-Income Countries - WP/02/77