Expenditure Composition, Fiscal Adjustment, and Growth in Low-Income Countries

Benedict Clements, Sanjeev Gupta, Emanuele Baldacci and Carlos Mulas-Granados

No 2002/077, IMF Working Papers from International Monetary Fund

Abstract: This paper assesses the effects of expenditure composition as well as fiscal adjustment on economic growth in a sample of 39 low-income countries during the 1990s. The paper finds that strong budgetary positions and fiscal consolidation are generally associated with higher economic growth in both the short and long terms. The composition of public outlays also matters: Countries where spending is concentrated on wages tend to have lower growth, while those that allocate higher shares to capital and nonwage goods and services enjoy faster output expansion. Expenditure composition, along with the size of the fiscal consolidation and initial fiscal conditions, affects the sustainability of adjustment. Initial fiscal conditions also have a bearing on the nexus between fiscal deficits and growth.

Keywords: WP; economic growth; government spending; percent of GDP; budget deficit; business cycle; Fiscal Policy; Public Expenditure Composition; Duration of Fiscal Consolidations; fiscal policy stance; fiscal policy-growth nexus; budget financing; expenditure category; expenditure reform; B. fiscal policy; domestic financing; financing of the deficit; expenditure item; effect of expenditure composition; expenditure reallocation; composition of expenditure; Fiscal consolidation; Expenditure composition (search for similar items in EconPapers)
Pages: 40
Date: 2002-04-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (29)

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