Fiscal Consolidation, Social Sector Expenditures and Twin Deficit Hypothesis: Evidence from Emerging and Middle-Income Countries

Amine Lahiani (), Ameni Mtibaa () and Foued Gabsi ()
Additional contact information
Amine Lahiani: Univ. Orléans, CNRS, LEO, FRE, 2014
Ameni Mtibaa: Univ. Orléans, CNRS, LEO, FRE, 2014
Foued Gabsi: Faculty of Economics and Management of Sfax

Comparative Economic Studies, 2022, vol. 64, issue 4, No 6, 710-747

Abstract: Abstract Following the present scale of fiscal imbalances, governments often implement fiscal consolidation programs to restore macroeconomic stability. This paper empirically explores the connections between social expenditure, current account and fiscal consolidations using the system-GMM estimator, on a panel of 23 emerging and middle-income countries for the 2009–2018 period. Our results confirm that government social expenditure decreases once fiscal austerity measures are implemented, practically when they are spending-driven. Fiscal consolidation may hurt important social expenditure allocation mainly on education and health components. Furthermore, we find that fiscal consolidation improves the current account deficit, providing support for the twin deficits hypothesis. These findings indicate that fiscal consolidation will eventually contribute to medium- and long-term external debt stability through the current account improvement. However, the exclusion of key growth determinants such as human capital can lead to many inefficiencies such as weak competition in the provision of social services (Jafarov and Gunnarsson in Government spending on health care and education in Croatia: Efficiency and reform options, working paper 136, International Monetary Fund, 2008). We suggest rationalizing social spending and devoting the country’s revenue to necessary and economically productive projects. The efficient use of resources will thus ensure better quality of education and health care services. This calls for good governance, an adequate administration and effective delivery structures.

Keywords: Government expenditures; Social expenditures; Fiscal policy; Fiscal adjustment; Twin deficit hypothesis; Current account; Cyclically adjusted primary balance (search for similar items in EconPapers)
JEL-codes: E62 E63 H51 H52 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1057/s41294-022-00183-6 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:compes:v:64:y:2022:i:4:d:10.1057_s41294-022-00183-6

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/41294/PS2

DOI: 10.1057/s41294-022-00183-6

Access Statistics for this article

Comparative Economic Studies is currently edited by Nauro Campos

More articles in Comparative Economic Studies from Palgrave Macmillan, Association for Comparative Economic Studies Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().