The composition of public expenditures, fiscal rules and economic growth

Mercredi | 2019-10-24
Salle B103 – 12h00

Tobignaré YABRE

This paper analyses the growth effect of various components of public expenditure in interaction with numerical fiscal rules. We estimate a dynamic panel model for 92 developed and developing countries using a Generalized Method of Moments (GMM) technique. We provide a more systematic empirical evidence than available hitherto defending that the adoption of a fiscal rule generates a shift on the composition of government expenditure that may increase the growth rate. It appears that without a fiscal rule, an increase in the shares of education, health and defence expenditures has a negative effect on growth, but this effect becomes positive under balanced budget, expenditure and debt rules. These rules also tend to increase the positive marginal effect of agricultural and transport and communication expenditures on growth but tend to reduce the beneficial effect of social protection expenditure on growth. Moreover, the results clearly indicate that fiscal rules tend to become growth-promoting instruments as some components of the budget increase excessively, except for the revenue rule that appears to be insignificant.