The effects of fiscal consolidations on the composition of government spending

Bamba, Moulaye; Combes, Jean-Louis; Minea, Alexandru

doi:10.1080/00036846.2019.1676392

Cited by 24 publications

(21 citation statements)

References 45 publications

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“…From a broad perspective, fiscal discipline is related to the ability of a government to maintain sustainable public finance. Several tools could enable to reach this objective namely fiscal consolidation programs (see Bamba et al [2020]) or fiscal rules. Irrespective of the complex issue of its measurement (see the next section), fiscal discipline in EMU is aimed to be ensured-as previously emphasized-by the supranational fiscal rules of the SGP and national fiscal rules.…”

Section: Fiscal Rules As a Policy To Promote Fiscal Discipline: Theorymentioning

confidence: 99%

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National fiscal rules and fiscal discipline in the European Union

2021

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Motivated by the fiscal imbalances in the EU countries in the recent period, this paper analyzes the effect of national fiscal rules on fiscal discipline. Using a careful definition of national fiscal rules combined with a novel measure of fiscal discipline (the Global Financial Performance Index-GFPI), propensity score matching estimations that account for potential endogeneity reveal that fiscal rules significantly improve the GFPI. However, this favorable effect dramatically depends upon the type of fiscal rule and different structural factors. These two features, together with alternative measures of fiscal discipline, are found to be key ingredients that should be taken into account when assessing the effects of fiscal rules on fiscal discipline.

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Section: Fiscal Rules As a Policy To Promote Fiscal Discipline: Theorymentioning

confidence: 99%

“…orCombes et al [2017]), or fiscal consolidations (see e.g Guichard et al [2007]. andBamba et al [2020]).…”

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confidence: 99%

National fiscal rules and fiscal discipline in the European Union

2021

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“…Nevertheless, one under-appreciated angle is the effect of fiscal adjustments periods which remains a widespread subject. The related literature shows that few studies have analyzed how fiscal consolidation affects expenditure composition which have given little attention to social costs during fiscal consolidation episodes (Castro 2017;Bamba et al 2019). This has brought to the forefront the issue of transitional social costs during fiscal consolidation episodes.…”

Section: Introductionmentioning

confidence: 99%

“…First, to our knowledge, this paper is one of the first to empirically estimate the social expenditure effect of fiscal consolidations for emerging and middle-income countries. Our study attempts to specifically focus on the government expenditure and particularly social expenditure during fiscal consolidation episodes, a subject that has indeed received little attention in Castro (2017) and Bamba et al (2019).…”

Section: Introductionmentioning

confidence: 99%

Fiscal Consolidation, Social Sector Expenditures and Twin Deficit Hypothesis: Evidence from Emerging and Middle-Income Countries

2022

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Following the present scale of fiscal imbalances, governments often implement fiscal consolidation programs to restore macroeconomic stability. This paper empirically explores the connections between social expenditure, current account and fiscal consolidations using the system-GMM estimator, on a panel of 23 emerging and middle-income countries for the 2009-2018 period. Our results confirm that government social expenditure decreases once fiscal austerity measures are implemented, practically when they are spending-driven. Fiscal consolidation may hurt important social expenditure allocation mainly on education and health components. Furthermore, we find that fiscal consolidation improves the current account deficit, providing support for the twin deficits hypothesis. These findings indicate that fiscal consolidation will eventually contribute to medium-and long-term external debt stability through the current account improvement. However, the exclusion of key growth determinants such as human capital can lead to many inefficiencies such as weak competition in the provision of social services (Jafarov and Gunnarsson in Government spending on health care and education in Croatia: Efficiency and reform options, working paper 136, International Monetary Fund, 2008). We suggest rationalizing social spending and devoting the country's revenue to necessary and economically productive projects. The efficient use of resources will thus ensure better quality of education and health care services. This calls for good governance, an adequate administration and effective delivery structures.

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“…Second, some studies support that public investment is reduced during fiscal consolidations (see e.g. Alesina and Perotti, 1995), above the contraction of current spending (Bamba et al, 2019); in turn, fiscal consolidations are found to narrow spreads (Baldacci et al, 2011). Third, the composition of public spending better captures government's fiscal policy decisions, and particularly the existence of political budget cycles (see e.g.…”

Section: Introductionmentioning

confidence: 99%

Does the composition of government spending matter for government bond spreads?

2021

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This paper contributes to the literature on fiscal policy as a determinant of government bond spreads. We analyze the effect of government spending on government bond spreads using a panel of 30 emerging countries during the period 2000-2013. Based on system-GMM estimations, we find that total public spending does not affect government bond spreads. Instead, we reveal a composition effect: higher current spending (public investment) increase (decrease) government bond spreads. This result may arise due to the fact that current (less productive) spending may be associated with lower growth prospects, making investors to require higher premia. Finally, we unveil nonlinearities driven by the quality of institutions: in particular, good institutions support a more favourable impact of current spending on government bond spreads. Our findings suggest that governments of emerging countries can improve their international financing conditions by reducing current spending and supporting public investment.

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The effects of fiscal consolidations on the composition of government spending

Cited by 24 publications

References 45 publications

National fiscal rules and fiscal discipline in the European Union

National fiscal rules and fiscal discipline in the European Union

Fiscal Consolidation, Social Sector Expenditures and Twin Deficit Hypothesis: Evidence from Emerging and Middle-Income Countries

Does the composition of government spending matter for government bond spreads?

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