Inflation targeting and the composition of public expenditure: Evidence from developing countries

Ablam Estel Apeti, Jean-Louis Combes and Alexandru Minea
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Ablam Estel Apeti: LEO - Laboratoire d'Économie d'Orleans [2022-...] - UO - Université d'Orléans - UT - Université de Tours - UCA - Université Clermont Auvergne, UCA - Université Clermont Auvergne

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Abstract: An important literature shows that inflation targeting (IT) adoption improves fiscal discipline. Our impact assessment analysis performed in a large sample of 89 developing countries over three decades shows that this favorable impact covers a composition effect: IT adoption is found to reduce more current expenditure compared with public investment in IT countries relative to non-IT countries. This finding is robust to various alternative specification, related to the structure of the sample, the measurement of the IT regime, or the estimation method. Consequently, aside from its acknowledged benefits for monetary policy goals, IT appears as an efficient tool to strengthen fiscal policy in developing countries towards lower and more productive public expenditure.

Keywords: Inflation targeting; Composition effect of public expenditure; Impact analysis; Current expenditure; Public investment (search for similar items in EconPapers)
Date: 2023-06
New Economics Papers: this item is included in nep-cba and nep-mon
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Published in Journal of Macroeconomics, 2023, 76, pp.103523. ⟨10.1016/j.jmacro.2023.103523⟩

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Journal Article: Inflation targeting and the composition of public expenditure: Evidence from developing countries (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04072840

DOI: 10.1016/j.jmacro.2023.103523

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