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

40 Pages Posted: 15 Feb 2006

See all articles by Sanjeev Gupta

Sanjeev Gupta

International Monetary Fund (IMF) - Fiscal Affairs Department

Benedict Clements

International Monetary Fund (IMF) - African Department

Emanuele Baldacci

International Monetary Fund (IMF) - Fiscal Affairs Department

Carlos Mulas-Granados

Government of the Kingdom of Spain - Economic Bureau of the President

Date Written: April 2002

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: Fiscal Policy Economic Growth Public Expenditure Composition Duration of Fiscal Consolidations

JEL Classification: E62 E23 H50

Suggested Citation

Gupta, Sanjeev and Clements, Benedict and Baldacci, Emanuele and Mulas-Granados, Carlos, Expenditure Composition, Fiscal Adjustment, and Growth in Low-Income Countries (April 2002). IMF Working Paper No. 02/77, Available at SSRN: https://ssrn.com/abstract=879593

Sanjeev Gupta (Contact Author)

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States

Benedict Clements

International Monetary Fund (IMF) - African Department ( email )

1700 19th Street, NW
Washington, DC 20431
United States

Emanuele Baldacci

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States

Carlos Mulas-Granados

Government of the Kingdom of Spain - Economic Bureau of the President ( email )

28071 Madrid
Spain

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