External debt, fiscal consolidation, and government expenditure on education

Elisé Miningou

Cahiers de recherche from Departement d'économique de l'École de gestion à l'Université de Sherbrooke

Abstract: To face a debt crisis, countries often implement various forms of fiscal consolidation policies. This may have some implications for their education financing. This paper tries to better understand how debt and fiscal consolidation can potentially impact government expenditure on education. It shows that increased external debt is associated with a higher risk of fiscal consolidation which could, in turn, be associated with a decline in education spending. One percent increase in the external debt is associated with a 1.4 % decline in the spending per school-age child. Given the rising debt levels fueled by the COVID-19 response policies, a decline in education expenditure is to be expected in the post-pandemic world. Simulations show that in low- and middle-income countries, a 5 % increase in the external debt could lead to a $12.8 billion decline in the volume of education expenditure, all things being equal. This decline is almost equivalent to the volume of official development assistance to the education sector in 2020. This paper sounds the alarm bell for the potential impact of the COVID-19-related debt on education financing.

Keywords: Human capital; Education Expenditure; Fiscal Consolidation; Debt. (search for similar items in EconPapers)
JEL-codes: H5 H6 I2 O1 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2022-10
New Economics Papers: this item is included in nep-des and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:shr:wpaper:22-02

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