Fiscal Multipliers of Government Health and Education Expenditures: Evidence from Electoral Budget Cycles

John Nana Darko Francois, Wilfried A. Kouame and Franz Ulrich Ruch

No 11499, Policy Research Working Paper Series from The World Bank

Abstract: This paper estimates the short-run effect of government health and education expenditures—often classified as merit goods—on output in developing countries. A novel instrument is constructed to identify the fiscal multiplier, exploiting two features of the budget process and electoral environment: (1) approved budget allocations are legislated before the fiscal year begins and, given the multi-year nature of health and education programs, reflect planning decisions taken well in advance of contemporaneous output shocks, and (2) constitutionally predetermined electoral timing generates political incentives for incumbents to increase and accelerate the execution of planned budgets in visible sectors like health and education ahead of elections. The instrument therefore interacts budget allocations with electoral cycle timing to isolate the predetermined, electorally driven component of merit goods spending. The estimated multiplier is around 2. Multipliers are larger in recessions, supporting health and education spending as effective countercyclical fiscal tools. Furthermore, multipliers are larger where shares of merit goods spending in output are low, which reflects stronger stimulative effects where unmet needs are greatest. Additionally, better institutions, proxied by control of corruption, condition the size of the multiplier. These findings suggest that health and education spending can yield a dual dividend, boosting economic activity even before their well-known longer-term productivity gains of a healthier, more educated population materialize.

Date: 2026-11-13
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