Fiscal Policy, Public Expenditure Composition, and Growth : Theory and Empirics

Semmler, Willi ; Greiner, Alfred ; Diallo, Bobo ; Rezai, Armon ; Rajaram, Anand

World Bank, Washington, DC

关键词: ANNUAL REVENUE;    BANK POLICY;    BONDS;    BUDGET CONSTRAINT;    BUDGET CONSTRAINTS;   

DOI  :  10.1596/1813-9450-4405
RP-ID  :  WPS4405

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

This paper responds to the developmentpolicy debate involving the World Bank and the IMF on theuse of fiscal policy not only for economic stabilization butalso to promote economic growth and increase per capitaincome. A key issue in this debate relates to the effect ofthe composition of public expenditure on economic growth.Policy makers and some researchers have argued thatexpenditure on growth-enhancing functions could enhancefuture revenue and justify the provision of "fiscalspace" in the budget. But there are no simple ways toidentify the growth-maximizing composition of publicexpenditure. The current paper lays out a research strategyto explore the effects of fiscal policy, including thecomposition of public expenditure, on economic growth, usinga time series approach. Based on the modeling strategy ofGreiner, Semmler and Gong (2005) we develop a general modelthat features a government that undertakes publicexpenditure on (a) education and health facilities whichenhance human capital, (b) public infrastructure such asroads and bridges necessary for market activity, (c) publicadministration to support government functions, (d)transfers and public consumption facilities, and (e) debtservice. The proposed model is numerically solved,calibrated and the impact of the composition of publicexpenditure on the long-run per capita income explored forlow-, lower-middle- and upper-middle-income countries.Policy implications and practical policy rules are spelledout, the extension to an estimable model indicated, a debtsustainability test proposed, and the out-of-steady-statedynamics studied.