Public spending and growth: the role of institutions

Atsuyoshi Morozumi () and Francisco Veiga

No 11/2014, NIPE Working Papers from NIPE - Universidade do Minho

Abstract: This paper examines the role of institutions in the nexus between public spending and economic growth. Using a newly assembled dataset of 80 countries over the 1970-2010 period with disaggregated public spending, we show that only when institutions prompt governments to be accountable to the general public, does the capital component of public spending significantly promote growth, especially when financed by a fall in current spending or by increased revenues. Meanwhile, a rise in current spending does not show robust growth-promoting potential, regardless of the level of government accountability. Our interpretation of these findings is that, while capital spending innately has a larger growth-fostering effect than current spending, inefficiencies inherent in the former type of spending, caused by officeholders’ rent-seeking behavior under unaccountable governments, mitigate its fostering effect.

JEL-codes: H50 O43 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-fdg, nep-gro, nep-pbe and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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