## 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](https://www.imf.org/en/publications/wp/issues/2016/12/30/expenditure-composition-fiscal-adjustment-and-growth-in-low-income-countries-15769)

## Other formats

- [Markdown version](/en/publications/wp/issues/2016/12/30/expenditure-composition-fiscal-adjustment-and-growth-in-low-income-countries-15769/index.md)
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## 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

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### 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.

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## Content in this bundle

- **Expenditure Composition, Fiscal Adjustment, and Growth in Low-Income Countries - WP/02/77**
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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/expenditure-composition-fiscal-adjustment-and-growth-in-low-income-countries-15769_