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What do governments buy? The composition of public spending and economic performance, Volume 1
Author:Devarajan, Shantayanan; Swaroop, Vinaya; Heng-fu Zou; Date Stored:1993/02/01
Document Date:1993/02/28Document Type:Policy Research Working Paper
SubTopics:Achieving Shared Growth; National Governance; Inequality; Economic Growth; Public Sector EconomicsLanguage:English
Major Sector:Public Administration, Law, and JusticeReport Number:WPS1082
Sub Sectors:Public Financial ManagementCollection Title:Policy, Research working papers ; no. WPS 1082. Public economics
Volume No:1  

Summary: The authors develop a simple analytical framework that shows how the composition of public spending affects economic growth. Distinguishing between productive and unproductive government spending (that which complements private sector productivity and that which does not), they show that increasing the share of productive spending leads to a higher steady-state economic growth rate. They use data from 69 developing countries over 20 years to determine which components of public spending are productive. They find that an increase in the share of current spending has positive and statistically significant effects on growth. Otherwise, the news is mainly negative. The relationship between the capital component of public spending and per capita growth is negative. The same is true of the share of spending on transport and communications. The shares spent on health and education have no significant impact, although parts of those shares - the parts spent on preventative care and "other education" - do. The results raise the question whether public spending actually leads to a flow of public goods and services.

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