Democracy, Elections and Allocation of Public Expenditure in Developing Countries

This paper overcomes traditional political budget cycles models, focusing solely on the dynamics of the overall budget, in order to shed light on electoral composition changes in public spending. Using data on 42 developing countries from 1975 to 2001, we find evidence of electoral impacts on the allocation of public expenditure. Our results show that election-year public spending shifts towards more visible current expenditure, in particular wages and subsidies, and away from capital expenditure. Futhermore, our findings suggest that electoral impacts on the allocation of public spending are likely to endure, even though countries gain experience in electoral politics.Political budget cycles;public expenditure composition;developing countries

Household Size Economies: Malaysian Evidence

People live in households with different size and composition and they consume a variety of goods; categorised as private and public goods. With the existence of public goods in the household, doubling the household size need not increase the consumption expenditure twofold to maintain the same standard of living. Using households’ per capita expenditure from the Household Expenditure Survey 2004-2005, we estimate the household size economies indices for household consumption goods through the Seemingly Unrelated Regression. The results suggested that the lower income households enjoy savings from a wider range of public goods compared to the higher income households.Household size economies, Seemingly Unrelated Regression, household composition, public goods, Malaysia.

Migration as a Safety Net and Effects of Remittances on Household Consumption: The Case of Colombia

We assess whether international remittances affect Colombian household’s expenditure composition and demand of education. We exploit the migratory wave that took place on late 90s due to one of the deepest crises in Colombian history, along with institutional barriers to migration, to identify the effect of remittances on expenditure composition. The empirical exercises find a positive effect over education, beneficiary households expending about 10% of total expenditure more in education than non beneficiaries. In addition although no effect was found on enrollment rates, we found an important effect on the probability of attending a private, rather that a public, educational institution. Such effect is on average 24% for individuals 5-30 years old, 50% for those attending secondary education, and 40% for those attending higher education. On the other hand, effects over consumption, investment and health expenditure, are nil. Finally, we find important effects of remittances on living standards of beneficiary households.International Remittances, International Migration, Safety Net, Consumption Composition Classification JEL: F22; I31; P36.

Seasonality in Government Expenditure Examined

Expenditure controllers in the Government are well aware of the problem of bunching of expenditure at the end of the year. The paper attempts to re-examine this phenomena. It is argued that response to this annually recurring problem of bunching should not be that of simply laying down uniform spending norms. Measures to prevent bunching call for taking into account the composition of expenditure and the nature of programmes being implemented by different spending departments.Government expenditure;phasing public expenditure

The Impact of Globalization on the Composition of Government Expenditures: Evidence from Panel Data

According to the disciplining hypothesis, globalization restrains governments by inducing increased budgetary pressure. As a consequence, governments shift their expenditures in favour of transfers and subsidies and away from capital expenditures. This expenditure shift is potentially enhanced by citizens’ preferences to be compensated for the risks of globalization (“compensation hypothesis”). Employing two different datasets and various measures of globalization, we analyze whether globalization has indeed influenced the composition of government expenditures. For a sample of 108 countries, we examine the development of four broad expenditure categories for the period 1970-2001: capital expenditures; expenditures for goods and services; interest payments; and subsidies and other current transfers. A second dataset provides a much more detailed classification: public expenditures, expenditures for defence, order, economic environment, housing, health, recreation, education, and social expenditures. However, this second data set is only available since 1990 – and only for the OECD countries. Our results show that globalization did not influence the composition of government expenditures.globalization, economic policy, government expenditure composition, tax competition

The Size and Composition of Government Expenditure

This paper tests several leading hypotheses on determinants of government expenditure. The purpose is to avoid omitted variables bias by testing the prominent theories in a comprehensive specification, to identify persistent puzzles for the current set of theories, and to explore those puzzles in greater depth by looking at the composition of government expenditure and the level of government at which it takes place as well as its magnitude. Using Global Financial Statistics data from the IMF covering over 100 countries from 1970-2000, I look at cross-sectional and inter-temporal variation in government expenditure and both individual categories of expenditure (such as defense, education, health care) and different levels of government (central, state, and local). Among other results, I find a new explanation for Wagner's Law, widespread evidence that preference heterogeneity leads to decentralization rather than outright decreases in expenditures, that a great deal of the expenditure associated with increased trade openness is not in categories that explicitly insure for risk, and evidence that both political access and income inequality affect the extent of social insurance.government expenditure, Wagner's Law

Modelling the Composition of Government Expenditure in Democracies

This paper considers whether the ratio of transfer payments to expenditure on public goods in democracies can be explained as the outcome of majority voting. A simple model is constructed in which individuals vote for government expenditure on a public good, for a given income tax rate. The transfer payment is then determined by the government’s budget constraint. The equilibrium ratio of transfers to public good expenditure per person is expressed as a quadratic function both of the ratio of the median to the mean wage, and of the tax rate. Data for 29 democratic countries are used to estimate a cross-sectional regression. The empirical results confirm that reductions in the skewness of the wage rate distribution are associated with reductions in transfer payments relative to public goods expenditure, at a decreasing rate. Furthermore, increases in the tax rate, from relatively low levels, are associated with increases in the relative importance of transfer payments. But beyond a certain level, further tax rate increases are associated with a lower ratio of transfers to public goods.

The evolution and convergence of the government expenditure composition in the OECD countries: an analysis of the functional distribution

The composition of the public expenditure affects the long-run growth rate (Barro, 1990, Devarajan, Swaroop and Zou, 1996). This paper has explored the existence of convergence in the structure of government expenditure by functions in the OECD countries for the period 1970-1998 and the perspectives of this process to persist in the future. The results obtained first through the similarity index and afterwards using the usual convergence indicators (ƒÒ, ƒã and ƒ×), adapted to the analysis of the breakdown of public expenditure, point out to the existence of a distribution approximation. Nevertheless, we have found that the majority of expenditures were near to the steady-state, which differs across countries. This reveals that there are some individual factors that impede the convergence to a single structure in the long run. This could be one of the explanations of the difference observed among economic growth rates in developed countries.convergence, composition of public expenditures, funtions of the government

Fiscal Rules and Composition Bias in OECD Countries

Using a sample of OECD countries, this paper finds that while fiscal rules succeeded in reducing total government expenditures and budget deficits in the medium term, they significantly affected the composition of government expenditure: the ratio of social transfers to government consumption declined. In contrast, we do not find a stable effect of fiscal rules on public investment. It is shown that the compositional shift against social transfers is beyond “from welfare to work” policies, which have been adopted by many OECD countries during the nineties. Our empirical examination reveals that the reduction of social transfers relative to government consumption did not occur in countries with strong legal protection to social rights.fiscal rules, government deficit, government expenditure, expenditures composition

Electoral Manipulation via Expenditure Composition: Theory and Evidence

We present a model of the Political Budget Cycle in which voters and politicians have preferences for different types of government spending. Incumbents try to influence voters by changing the composition of government spending, rather than overall spending or revenues. Rational voters may support an incumbent who targets them with spending before the election even though such spending may be due to opportunistic manipulation, because it can also reflect sincere preference of the incumbent for types of spending voters favor. Classifying expenditures into those which are targeted to voters and those that are not, we provide evidence supporting our model in data on local public finances for all Colombian municipalities. Our findings indicate both a pre-electoral increase in targeted expenditures, combined with a contraction of other types of expenditure, and a voter response to targeting.