Inflation targeting and the composition of public expenditure: Evidence from developing countries

Ablam Estel Apeti, Jean-Louis Combes and Alexandru Minea

Journal of Macroeconomics, 2023, vol. 76, issue C

Abstract: An important literature shows that inflation targeting (IT) adoption improves fiscal discipline. Our impact assessment analysis performed in a large sample of 89 developing countries over three decades shows that this favorable impact covers a composition effect: IT adoption is found to reduce more current expenditure compared with public investment in IT countries relative to non-IT countries. This finding is robust to various alternative specification, related to the structure of the sample, the measurement of the IT regime, or the estimation method. Consequently, aside from its acknowledged benefits for monetary policy goals, IT appears as an efficient tool to strengthen fiscal policy in developing countries towards lower and more productive public expenditure.

Keywords: Inflation targeting; Composition effect of public expenditure; Impact analysis; Current expenditure; Public investment (search for similar items in EconPapers)
JEL-codes: E52 E58 E62 E63 H50 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Working Paper: Inflation targeting and the composition of public expenditure: Evidence from developing countries (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:76:y:2023:i:c:s016407042300023x

DOI: 10.1016/j.jmacro.2023.103523

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