What Do OECD Countries Cut First When Faced with Fiscal Adjustments?

Ismael Sanz

Southern Economic Journal, 2011, vol. 77, issue 3, 753-775

Abstract: Following the present scale of fiscal imbalances in developed countries, significant fiscal consolidation will be inevitable in the coming years. Fiscal discipline will require cuts in government expenditure, leading to trade‐offs between different components of government expenditure. In this article, we explore the relationship between components of government expenditure and government size during the period 1970‐2007 for a sample of 25 developed countries to shed light on how fiscal discipline might influence public spending composition in the coming years. Using the Pooled Mean Group estimation we find that fiscal adjustments protect functions that have both a social and productive character, such as education and health spending. In addition, the most productive spending, that related to transport and communications, is also isolated from budgetary cuts. This result shows evidence of governments reacting to the voter's increasing realization that reducing productive expenditures harms long‐term economic growth by striking a balance between utility and economic‐growth‐enhancing expenditure.

Date: 2011
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://doi.org/10.4284/sej.2011.77.3.753

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:wly:soecon:v:77:y:2011:i:3:p:753-775

Access Statistics for this article

More articles in Southern Economic Journal from John Wiley & Sons
Bibliographic data for series maintained by Wiley Content Delivery ().