fiscal structures and economic growth international evidence i introduction a large and growing body of literature searches for the determinants of economic growth employing cross country regression analysis e g kormendi and meguire 1985 grier and tullock 1989 barro 1990 1991 1992 romer 1989 1990 levine 1991 and levine and renelt 1992 1 the cross country regression approach implicitly assumes that the growth process possesses similar structural properties across the countries in the sample structural differences be they political economic social or other between countries therefore do not condition the growth process or if they do then the effects are randomly distributed with zero mean if structural differences between countries do matter significantly and non randomly in the growth process then the existing cross country research is potentially flawed attempts are sometimes made to control for such differences by including dummy variables for different regions of the world e g dummy variables for african latin american and other groups of countries within the literature on the determinants of economic growth some papers e g landau 1983 1985 1986 kormendi and meguire 1985 ram 1986 koester and kormendi 1989 barth keleher and russek 1990 easterly and rebelo 1993 and fischer 1993 consider the effects if any of government expenditure and revenue on economic growth overall the findings of these studies paint a mixed picture the relationship between growth and government is sometimes significant and positive sometimes significant and negative and sometimes not significant although these studies consider many different fiscal variables they do not as a rule examine the effects of these fiscal variables in a systematic way that controls for the mode of financing they generally overlook for example how an increase in government consumption expenditure is financed is it with higher taxes and which taxes or is it with lower spending and which spending finally is it with a larger deficit controlling for these factors may lead to different findings about the effect of an increase in government consumption expenditure on economic growth borrowing from some work on the effect of fiscal structure on national economic growth within the united states in helms 1985 mofidi and stone 1990 and miller and russek 1993 we introduce the government budget constraint into the regression equations that examine the determinants of economic growth as a result we directly address the three financing questions raised in the previous paragraph in this framework we consider the growth process using pooled times series cross section data and comparing the results from fixed and random effects econometric techniques 2 these techniques attempt to accommodate structural differences between countries and across time we also compare the performance of the more standard ordinary least squares regression approach with that of the fixed and random effect models ii an overview of international fiscal structures before presenting our model and statistical findings a brief overview of the growth and fiscal characteristics of the countries in our sample provides some additional information for those not familiar with the data which otherwise would not be revealed by our analysis 3 this information can contribute in a limited way to the debate about the effects of government on economic growth although it is not a substitute for modeling the growth process for the sample as a whole the growth rate of real per capita gross domestic product gdp averaged 1 35 per year during 1975 to 1984 with a coefficient of variation of 3 52 by comparison the average growth rate in the united states was 1 45 the five fastest growth countries were botswana 6 72 indonesia 4 19 korea 6 32 sri lanka 3 20 and thailand 4 31 the five slowest growth countries were el salvador 1

democracy and economic growth a meta analysis despite a sizeable theoretical and empirical literature no firm conclusions have been drawn regarding the impact of political democracy on economic growth this article challenges the consensus of an inconclusive relationship through a quantitative assessment of the democracy growth literature it applies meta regression analysis to the population of 483 estimates derived from 84 studies on democracy and growth using traditional meta analysis estimators the bootstrap and fixed and random effects meta regression models it derives several robust conclusions taking all the available published evidence together it concludes that democracy does not have a direct impact on economic growth however democracy has robust significant and positive indirect effects through higher human capital lower inflation lower political instability and higher levels of economic freedom democracies may also be associated with larger governments and less free international trade there also appear to be country and region specific democracy growth effects overall democracy s net effect on the economy does not seem to be detrimental

accommodating public expenditure policies the case of fast growing asian economies abstract it is widely believed that the exceptional economic performances of the east asian economies are attributable as much to the visible hand of the state as to the invisible hand of the market this paper analyzes the experiences of japan south korea singapore and taiwan in implementing a key instrument of state intervention namely public expenditure policy the analysis shows that these economies could achieve high standards of physical and social infrastructure even with relatively low spending the key features of complementary spending policy include emphasis on macroeconomic stability cost effective spending involvement of private sector in providing quasi public goods minimum distortions in the labor markets and human resource development to achieve a broad based development

new evidence on the relationship between democracy and economic growth it is often maintained that democracy is a luxury which comes at a price in terms of subsequent slower increases in national living standards however various recent cross section studies on economic growth have found evidence that lack of civil and political liberties is negatively correlated with economic growth using a new measure of democracy which is based upon the number of years that a country can be regarded as a democracy the robustness of this relationship is examined both direct and indirect effects of lack of democratic liberties are analysed our main conclusion is that the relationship between democracy and economic growth is not rubust

urban economic growth in china theory and evidence this paper analyses the relationship between per capita gdp growth and investment foreign direct investment labour force growth government expenditure and urban infrastructure based on the data

productive government expenditures and long run growth the purpose of this paper is to review some of the recent developments in endogenous growth models specifically our focus is on the growth effects of productive government spending in dynamic general equilibrium models we use a simple overlapping generations model as our basic framework and illustrate the role of taxes and spending we then examine several related issues nonrivalry in publicly provided goods existence and uniqueness of competitive equilibrium endogenous public policy ways of financing public expenditures composition of publicly provided goods and services and private alternatives finally we review some empirical results related to output elasticity of public capital and educational expenditures

can trade liberalization stimulate economic growth in africa abstract this paper examines changes in economic growth that are likely to result from changes in trade policies exports and investment in 12 sub saharan african ssa countries using a vector error correction model vecm our results indicate that trade policies exports and investment rate shocks have a significant impact on economic growth in 10 of the 12 ssa countries this suggests that it is possible to stimulate economic growth in some african countries through an outward looking strategy of export expansion more significantly the results further suggest the importance as well as the need for african countries to embark on trade liberalization policies in order to enhance economic growth in the current world economy

fiscal adjustment and growth in cote d ivoire abstract the ivorian government resorts to public spending cuts particularly investment for its current fiscal adjustment this paper which hypothesizes that this pattern is likely to induce recession focuses on the relationship between adjustment and growth in cote d ivoire using a specific growth model the paper establishes that public investment has a net crowding in effect on the private sector and a positive impact on growth hence public investment cuts bring about a decline in output simulations of alternative policies show that the best suited one e g which reduces the fiscal deficit while preserving growth supposes an increase in public investment cuts in public consumption and a decrease in taxes and tariffs on the external sector

political regimes and economic growth arguments that relate regimes to growth focus on property rights pressures for immediate consumption and the autonomy of dictators while everyone seems to agree that secure property rights foster growth it is controversial whether democracies or dictatorships better secure these rights the main mechanism by which democracy is thought to hinder growth is pressure for immediate consumption which reduces investment only states that are institutionally insulated from such pressures can resist them and democratic states are not the main argument against dictatorships is that authoritarian rulers have no interest in maximizing total output these views are summarized in turn

government size and economic growth the african experience 1960 85 1990 government size and economic growth the african experience 1960 85 applied economics vol 22 no 10 pp 1427 1435

moral hazard and nonexclusive contracts we study equilibria for economies with hidden action in environments in which the agents contractual relationships with competing financial intermediaries cannot be monitored or are not contractible upon we fully characterize equilibrium allocations and contracts for such economies as well as discuss their welfare properties depending on the parameters of the economy either the optimal action choice is not sustained in equilibrium or if it is agents necessarily enter into multiple contractual relationships and intermediaries make positive profits even under free entry conditions the main features and implications of these environments are consistent with several stylized facts of markets for unsecured loans

winter is coming robert gordon and the future of economic growth this comment assesses the claim of the rise and fall of american growth that for coming decades growth in us tfp will continue the disappointing pace of the last decade while predicting future technological advance is difficult there are indications that gordon may actually be too optimistic on future tfp growth the share of output from manufacturing which still generates the majority of r d expenditures and has historically more rapid tfp growth will continue to fall there are substantial obstacles to rapid tfp advance in much of the rest of the economy construction transport health care and other services

government and economic growth in the less developed countries an empirical study for 1960 1980 adam smith founded modern economics with a powerful argument that free markets are the best route to prosperity and economic growth his conclusion has been studied and debated by economists ever since including nobel prize winners friedman hayek kuznets lewis myrdal and schultz whatever economists have concluded since world war ii the majority of the less developed countries seem to have opted for extensive government regulation of the private sector and for a large public sector has the large government role slowed or accelerated the growth of ldcs obviously this is an important issue this study looks at government expenditure revenue raising and regulation greater emphasis is put on expenditure because 1 the revenue raised is presumably a function of the level of expenditure and 2 there are few internationally comparable measures of regulation there are virtually no empirical studies of the general impact of government on economic growth an extensive literature search turned up only three papers gemmell analyzed the impact of nonmarket sector growth on various measures of macroeconomic performance for 27 ldcs and developed countries for 1960 and 1970 he drew no general conclusions about the relation between the size of the nonmarket sector and economic growth marsden found a negative relation between tax gdp ratios and economic growth for a cross section of 20 ldcs and developed countries for the 1970 79 period 2 i found a negative relationship between the share of government consumption expenditure in gdp and the growth of per capita gdp for a cross section of 96 ldcs and developed countries over various time periods between 1961 and 1976 3 this paper extends the approach used in my 1983 article

missing public funds and targeting performance evidence from an anti poverty transfer program in indonesia abstract this paper investigates how failing to consider missing funds in public resource delivery can lead to misleading conclusions on the nature and correlates of targeting performance combining administrative data on disbursement and household survey data on receipt under indonesia s anti poverty program inpres desa tertinggal idt we find that only 69 of disbursements were actually received by the intended beneficiaries when these missing funds are ignored the distribution of idt benefits is pro poor and better targeting is found in districts with higher per capita expenditure however when the missing funds are taken into account the distribution of idt benefits in fact becomes less pro poor than universal equal distribution and better targeting is correlated with a higher proportion of female village heads and a higher level of villagers human capital these results underscore the importance of considering the size and allocation of missing funds in the analysis of targeting in public resource delivery

public choice and economic aid a major development in the analysis of government economic policies in the developed countries has been the rise of the public choice school the essence of this approach is the application of the same basic assumptions that are used in the study of consumers and producers to political decision makers in the public choice approach decision makers in the public sector are assumed to be trying to maximize their personal benefits similarly to consumers and firms imputing utility maximizing behavior to public sector decision makers does not automatically lead to the conclusion that they will not act in the general interest rather whether they do or not becomes a question of the system of rewards and constraints they face as adam smith demonstrated for firms self interested parties will act in the general interest if properly constrained and rewarded however the public choice approach does imply that public sector decision makers will act in the general interest only if the constraints and incentives on their behavior make serving the general interest also in their interest it would appear that development economics which is highly concerned with government policies could benefit from the application of the public choice perspective this article attempts to do this with respect to the effectiveness of economic aid in promoting economic growth there is an extensive literature that discusses theoretically the effectiveness of aid and a more modest literature that attempts to estimate empirically the impact of aid on growth the literature was recently surveyed by r riddell he surveys the views of the major proponents and critics of aid marxist critics of aid reject the market and the notion of a neutral state pursuing the general interest there seem to be no studies of aid that adopt the public choice approach which both accepts the efficiencies of the market as an instrument for economic growth and also assumes government officials are utility

local capture evidence from a central government transfer program in uganda according to official statistics 20 percent of uganda s total public expenditure was spent on education in the mid 1990s most of it on primary education one of the large public programs was a capitation grant to cover schools nonwage expenditures using panel data from a unique survey of primary schools we assess the extent to which the grant actually reached the intended end user schools the survey data reveal that during 1991 1995 the schools on average received only 13 percent of the grants most schools received nothing the bulk of the school grant was captured by local officials and politicians the data also reveal considerable variation in grants received across schools suggesting that rather than being passive recipients of flows from the government schools use their bargaining power to secure greater shares of funding we find that schools in better off communities managed to claim a higher share of their entitlements as a result actual education spending in contrast to budget allocations is regressive similar surveys in other african countries confirm that uganda is not a special case

democracy rent seeking public spending and growth abstract does democratization imply faster growth less corruption and less inefficiency past studies yield ambiguous results on the effects of democracy on economic performance and growth we develop a simple two sector endogenous growth model that shows both very young and mature democracies grow faster than countries in mid stages of democratization producing a u effect this effect results from the pattern of rent seeking as it diverts from the provision of public goods rent seekers act as monopolistic competitors initially more democracy increases their number raising aggregate rents however rents per rent seeker fall with the number of rent seekers due to this crowding effect and the increased competition among rent seekers aggregate rents fall in mature democracies thus rents show an inverted u effect in relation to democracy we find fairly robust supportive evidence for the latter

how much do distortions affect growth abstract this paper presents a simple endogenous growth model with two types of capital which can display sizeable long run growth effects of distortionary policies the model applies to many different types of distortions of relative prices common in developing countries such as differential taxes and tariffs black market exchange rates and price controls the model shows that a subsidy to one type of capital financed by a tax on another capital good lowers growth a measure of the variance of relative prices of investment goods across sectors has a negative and statistically significant effect on growth

political sources of growth a critical note on measurement this note critically reviews the research on the link between political systems and economic growth empirical attempts to capture this patent relationship have been met with mixed success we conclude that the political variables used in these studies i e democracy and political instability do not adequately reflect the investors problem we suggest that a political variable that encompasses all kinds of potential discretionary state interventions would be more effective in explaining cross country differences in economic growth

economic growth and the expanding public sector a reexamination utilizing a granger causality approach the authors test whether there has been a causal rela tion between public sector growth and real economic growth rates for the oecd countries special emphasis is laid on feedback effects from economic growth to government growth that result from macroeconomic policy the authors find that government growth has had mixed effects on economic growth rates positive for some countries and negative f or others however for the majority of the oecd countries there was no discernable impact of government growth on the rate of real econo mic growth copyright 1988 by mit press

public expenditures in sub saharan africa during a period of economic reforms abstract public expenditure restraint is the most direct means of reducing balance of payments and budget deficits and is consequently a key aspect of macroeconomic adjustment programs the results of this study indicate a steady increase in total central government and social services spending during 1977 1989 in sub saharan africa the growth in population however contributed to an overall erosion in per capita expenditures while total government expenditures as a share of gdp have been stable during the past decade they have declined net of interest repayments which represent an increasingly large share of total spending an analysis of spending in the three years before and after donor financed adjustment programs began reveals no pattern of increase or decrease in real levels of total and social sector expenditures or in social sector spending as a share of the total expenditures elasticities of health and education spending with respect to gdp were found to be greater than unity in recent years indicating that as countries develop social spending will constitute a larger share of gdp

democracy and development a theoretical framework a simple framework is set up to discuss the relationship between democracy material welfare and development democracy is regarded both as a good in its own right and as an input in the production of material welfare the optimum level of democracy is then related to the level of development at the optimum point the marginal cost of democracy in terms of foregone output is positive and growth is a decreasing function of the level of democracy deviations from the optimum path are described as either repressive or populist democratization is not unambiguously an optimal response to exogenous shocks

distributional effects of growth and public expenditures in africa estimates for tanzania and rwanda summary in this paper we explore the effects of fiscal policies and growth on measures of household welfare across the distribution of expenditures for two african countries rwanda and tanzania we explore the effect of government expenditures on expenditure growth in each quintile of the expenditure distribution and the effect of growth for each group we find that the benefits of growth are concentrated among the better off sectors of the population in these two countries perhaps to the detriment of the poorer sectors by looking at the effects within a country and across different groups of households and administrative entities we exploit variation in expenditures and growth across and within regions of each country to estimate the elasticities of expenditure with respect to fiscal expenditure and mean expenditure growth at different points of the expenditure distribution using household survey data and government expenditure data at the district level we find that overall mean expenditure growth benefits the top expenditure groups the welfare spillovers are mostly present for top 20 of the expenditure distribution with the middle of the distribution in tanzania responding slightly to these spillovers public social expenditures do not appear to affect inequality considerably but do tend to work toward decreasing inequality however mean expenditure growth is related to increases in inequality in the sense that the richest sectors of the population benefit the most from growth we find that the growth elasticity of expenditure is only above one for the top quintile in both countries in tanzania a 1 increase in average household expenditure is related to a 1 96 expenditure growth in the top quintile and 0 43 in the third quintile in rwanda a 1 increase in average household expenditure is related to a 1 93 increase in household expenditure in the top 20 of the distribution

economic growth in africa abstract this paper draws on the recent endogenous growth methodology to study the factors behind differences in per capita growth rates across africa the results indicate that various economic factors including initial conditions investment population growth trade orientation inflation financial development and the growth of the government sector contribute significantly to economic growth in addition to economic variables we find the degree of political freedom to be a significant contributor to economic growth finally we find some evidence that economic growth by the members of the cfa franc zone has not fared well in comparison to other african countries

government expenditure and economic growth a cross country study this paper examines the relationship between the share of government consumption expenditure in gdp and the rate of growth of real per capita gdp the work of the u n international comparison project has recently made available new estimates for over 100 countries of both per capita gdp and the share of government consumption these new estimates are based on direct price comparisons rather than exchange rate conversions as a result the statistics for different countries are more comparable and cross country studies will be more reliable