Public spending and outcomes: Does governance matter?

This paper studies the links between public spending, governance, and outcomes. We examine the role of governance–measured by the level of corruption and the quality of bureaucracy–in determining the efficacy of public spending in improving human development outcomes. Our analysis contributes to our understanding of the relationship between public spending, governance and outcomes, and helps explain the surprising result that public spending often does not yield the expected improvement in outcomes. We show empirically that the differences in the efficacy of public spending can be largely explained by the quality of governance. Public health spending lowers child mortality rates more in countries with good governance. Similarly, public spending on primary education becomes more effective in increasing primary education attainment in countries with good governance. More generally, public spending has virtually no impact on health and education outcomes in poorly governed countries. These findings have important implications for enhancing the development effectiveness of public spending. The lessons are particularly relevant for developing countries, where public spending on education and health is relatively low, and the state of governance is often poor.     

Economic and other determinants of infant and child mortality in small developing countries: the case of Central America and the Caribbean

This analysis involves empirically testing a theoretical model among 22 Central American and Caribbean countries during the 1990s that explains differences in infant and child mortality. Explanatory measures capture demographic, economic, health care, and educational characteristics. The model is expected to allow for an assessment of the potential impact of structural adjustment and external debt. It is pointed out that birth rates and child mortality rates followed similar patterns over time and between countries. In this study's regression analyses all variables in the three models that explain infant mortality are exogenous: low birth weight, immunization, gross domestic product per capita, years of schooling for women, population/nurse, and debt as a proportion of gross national product. As nations became richer, infant mortality declined. Infant mortality was lower in countries with high external debt. In models for explaining the birth rate and the child mortality rate, the best fit included variables for debt, real public expenditure on health care, water supply, and malnutrition. Analysis in a simultaneous model for 10 countries revealed that the birth rate and the child mortality rate were more responsive to shocks in exogenous variables in Barbados than in the Dominican Republic, and more responsive in the Dominican Republic than in Guatemala. The impact of each exogenous variable varied by country. In Barbados education was four times more effective in explaining the birth rate than water. In Guatemala, the most effective exogenous variable was malnutrition. Child mortality rates were affected more by multiplier effects. In richer countries, the most important impact on child survival was improved access to safe water, and the most important impact on the birth rate was increased real public expenditure on education per capita. For the poorest countries, findings suggest first improvement in malnutrition and then improvement in safe water supplies. Structural adjustment variables were found to have small impacts on the birth rate or limited impacts on child survival in poorer countries.     

What did Medicare do? The initial impact of Medicare on mortality and out of pocket medical spending

We study the impact of the introduction of one of the major pillars of the social insurance system in the United States: the introduction of Medicare in 1965. Our results suggest that, in its first 10 years, the establishment of universal health insurance for the elderly had no discernible impact on elderly mortality. However, we find a substantial reduction in the elderly's exposure to out of pocket medical expenditure risk. Specifically, we estimate that the introduction of Medicare was associated with a 40% decline in out of pocket spending for the top quartile of the out of pocket spending distribution. A stylized expected utility framework suggests that the welfare gains from such reductions in risk exposure alone may be sufficient to cover almost two-fifths of the costs of Medicare. These findings underscore the importance of considering the direct insurance benefits from public health insurance programs, in addition to any indirect benefits from an effect on health.     

The effectiveness of government spending on education and health care in developing and transition economies

Recent studies show that corruption is associated with higher military spending [Eur. J. Polit. Econ. 17 (2001) 794] and lower government spending on education and health care [J. Publ. Econ. 69 (1998) 263]. This suggests that policies aimed at reducing corruption may lead to changes in the composition of government outlays toward more productive spending. However, little empirical evidence has been presented to support the claim that public spending improves education and health indicators in developing and transition countries. This paper uses cross-sectional data for 50 such countries to show that increased public expenditure on education and health care is associated with improvements in both access to and attainment in schools, and reduces mortality rates for infants and children. The education regressions are robust to different specifications, but the relationship between health care spending and mortality rates is weaker.     

Is high‐tech care in a middle‐income country worth it?

How much does a dramatic increase in technology improve healthcare quality in an upper middle‐income country? Using rich vital statistics on infant health outcomes, this study evaluates the effect of introducing technologically advanced perinatal hospitals in 24 regions of Russia on infant mortality during the period 2009–2013. A 7‐year aggregate panel dataset reveals that opening a perinatal centre corresponds to infant mortality reduction by 3.8 percent from the baseline rate, neonatal (0–28 day) mortality by 7 percent and early neonatal (0–6 day) mortality by 7.3 percent. We find that the perinatal centres help to save 263 additional infant lives annually, ranging from 3 to 25 lives in regions with different birth rates. However, we further find that an average cost per life saved is 52 million rb (or 2.6 million 2014 PPP USD), which is much higher than the cost of similar interventions in the United States.     

Infant mortality,relative income and public policy

Do health outcomes depend on relative income as well as on an individual's absolute level of income? We use infant mortality as a health status indicator and find a significant and positive link between infant mortality and income inequality using cross-national data for 93 countries. Holding constant the income of each of the three poorest quintiles of a country's population, we find that an increase in the income of the upper 20% of the income distribution is associated with higher, not the lower infant mortality. Our results are robust and not just caused by the concave relationship between income and health. The estimates imply a decrease in infant mortality by 1.5% for a one percentage point decrease in the income share of the richest quintile. The overall results are sensitive to public policy: public health care expenditure, educational outcomes, and access to basic sanitation and safe water can explain the inequality–health relationship. Thus, our findings support the hypothesis of public disinvestment in human capital in countries with high income inequality. However, we are not able to determine whether public policy is a confounder or mediator of the relationship between income distribution and health. Relative deprivation caused by the income distance between an individual and the individual's reference group is another possible explanation for a direct effect from income inequality to health.     

The Impact of Public Health Spending on California STD Rates

This study assesses the impact of county-level public health spending on rates of sexually transmitted disease (STD) in California. Across a variety of empirical specifications, increases in own-county public health spending reduce rates of gonorrhea and syphilis. Indeed, a $1 increase in per capita public health spending reduces the gonorrhea (syphilis) rate by approximately 0.30 (0.60) percent. Spillover effects are also associated with public health spending, as increases in border-county spending reduce STD rates. To varying degrees of significance, county STD rates are also sensitive to lagged STD rates, county racial composition, whether or not a public university is located within the county, and a yearly time trend.     

关于公共支出与经济增长的国内外研究综述

公共支出与经济增长的关系一直以来为经济学家们所争论。持公共支出促进经济增长观点认为,政府公共支出在经济增长中发挥着重要作用,因为它为经济发展提供了大量的公共品和其他具有外部效应的公共福利或服务,从而鼓励和便利了私人投资,形成了一个较好的投资环境,促进了经济增长。而持反对意见的认为,公共支出往往是生产率较低的,为融通政府支出而形成的高税收又会对私人部门的消费和投资造成很大的负面影响,因此,必须缩减政府支出,才能保证经济增长。当然也有人持两者根本就没有关系的观点。     

Estimating the public economic consequences of introducing varenicline smoking cessation therapy in South Korea using a fiscal analytic framework

Background and aims: Smoking gives rise to many cross-sectorial public costs and benefits for government. Costs arise from increased healthcare spending and work-related social benefits, while smoking itself provides significant revenue for government from tobacco taxes. To better understand the public economic impact of smoking and smoking cessation therapies, this study developed a government perspective framework for assessing smoking-attributable morbidity and mortality and associated public costs. This framework includes changes in lifetime tax revenue and health costs, as well as changes in tobacco tax revenue, from fewer smokers.

Methods: A modified generational accounting framework was developed to assess relationships between smoking-attributable morbidity and mortality and public economic consequences of smoking, including lifetime tax revenue gains/losses, government social transfers, and health spending. Based on the current prevalence of smoking in South Korean males, a cohort model was developed for smokers, former-smokers, and never-smokers. The model simulated the lifetime discounted fiscal transfers for different age cohorts in 5 year age bands, and the return on investment (ROI) from smoking cessation therapy.

Results: Former smokers are estimated to generate higher lifetime earnings and direct tax revenues and lower lifetime healthcare costs due to the reduction of smoking-attributable mortality and morbidity compared to smokers, even after accounting for reduced tobacco taxes paid. Based on the costs of public investments in varenicline, this study estimated a ROI from 1.4–1.7, depending on treatment age, with higher ROI in younger cohorts, with an average ROI of 1.6 for those aged less than 65.

Conclusions: This analysis suggests that reductions in smoking can generate positive public economic benefits for government, even after accounting for lost tobacco tax revenues. The results described here are likely applicable to countries having similar underlying smoking prevalence, comparable taxation rates, and social benefit protection provided to individuals with smoking-related conditions.     

PUBLIC AND PRIVATE INVESTMENT AND ECONOMIC GROWTH IN MEXICO

This paper analyzes the impact on economic growth of public and private investment spending in Mexico. Public investment expenditures had a positive and significant effect on output growth. Public investment's impact on economic growth was statistically identical to the impact of private capital spending. The contribution of public investment to output expansion came at the expense of private investment as indicating a significant crowding out effect.     

Public finance,government spending and economic growth: the case of local governments in Brazil

The impact of local government spending on output growth is estimated using a panel of Brazilian municipalities during 1985–1994. Attention is focused on three expenditure categories, housing/urbanization, health/sanitation, and transport services, which are expected to be growth-enhancing, and their sources of finance (local taxes, intergovernmental transfers, and borrowing). The determinants of these spending categories are also examined. The size of the municipality, measured by the resident population, is shown to affect government spending nonlinearly. This is a contribution to the recent empirical literature on the linkages between decentralized government spending, public finances, and economic growth at the local, rather than national, level.     

Evolution of infant and child mortality in Chile: a model

The author contends that birth rate and infant and child mortality rates are jointly determined by demographic, economic, health care, and other influences. Working under this structural assumption, a multiequation model is developed, estimated, and simulated, in which real earnings, unemployment, midwife visits, access to cheap energy, public health expenditures, and degree of urbanization are determinant factors of declining infant and child mortality in Chile. Most notably, mortality declined during a period of increasing unemployment and falling living standards for at least part of the population. The study found all 3 rates to be jointly determined, but by different variables. Specifically, unemployment affected birth rate and child mortality rate, while declining infant mortality was based upon midwife visits, health expenditure, and access to cheap energy. At the policy level, trade-offs often result between infant and child mortality, especially where high birth rates prevail. Where movement along the Phillips curve is possible, higher earnings should be preferred over lower unemployment for the benefit of infant and child mortality. Preferred policy would week to provide a carefully balanced combination of better earnings and more midwife visits.     

Government spending and economic growth in the OECD countries

Using panel data from 1995 to 2011 for 34 OECD countries, we examine the effects of government consumption spending, public social spending, and public investment on economic growth. We use a generalized method of moments estimation technique to solve inconsistency problems with fixed effects and random effects panel estimation. We find that an increase in public social spending has a significant negative effect on subsequent economic growth. Government consumption spending and public investment have no significant effect on subsequent economic growth.     

Population Ageing and Social Expenditure in New Zealand

As the population ages there will be potentially significant implications for a wide range of economic variables, including in particular the fiscal costs of social expenditures. Long‐term fiscal planning requires estimates of the possible future path of public spending. This article presents projections for 14 categories of social spending. These projections are based on detailed demographic estimates covering fertility, migration and mortality. Distributional parameters are incorporated for all of the major variables, and are used to build up probabilistic projections for social expenditure as a share of gross domestic product using simulation. Attention is focused on health expenditures which are disaggregated into seven broad classes. In addition, we explore the impacts of alternative hypotheses about future health costs. While it can be predicted with some confidence that overall social expenditures will rise, the results suggest that long‐term planning would be enriched by recognising the distributions around point estimates of projected social costs.     

The patterns and determinants of longevity in Russia's regions: Evidence from panel data

In this paper we examine whether regions of Russia have been converging or diverging in their longevity levels during the 1990s and evaluate the divergence effect of the 1998 financial crisis. We also estimate the impact of changes in poverty and public health spending on inter-temporal variations in longevity using regional-level panel data for 77 Russian regions from 1994 to 2000. Finally, we investigate the extent to which the gradual recovery in longevity observed after 1994 was derailed by the 1998 financial crisis and the public policy shifts required for regions to regain their Soviet-era levels of longevity. We find a significant negative effect of the 1998 crisis on longevity independently of the factors related directly to poverty and public health spending. In addition, a permanent negative shock to the incidence of poverty and the amount of publicly-provided health care in a region has enduring consequences on the population's health. Finally, the effect of increases in public health spending on longevity is related positively to the incidence of poverty. Journal of Comparative Economics 33 (4) (2005) 788–813.     

Did fiscal institutions affect Wagner’s law in Italy during 1951–2009 period? An empirical analysis

In this article, we test Wagner’s assumption of the one-sided directional flow moving from economic growth to public spending in Italy for the 1951–2009 period. We pay particular attention to the impact of certain regime shifts related to changes in Italian budget regulations and procedures and the relevance of fiscal institutions to the fiscal performance equation, i.e. the public spending–national income nexus. The Error Correction Model is estimated to measure short-run dynamic effects and the long-run equilibrium between the two time series. The empirical evidence suggests that Wagner’s law is supported. In regard to policy implications, we find that public spending reacted less to positive changes in economic growth when the strengthening of the Ministry of Finance occurred in 1997 (Ciampi’s reform). Some sensitivity analyses confirm our empirical evidence.     

Generational conflict and education politics: Implications for growth and welfare

This study considers the politics of public education and its impact on economic growth and welfare across generations. We employ probabilistic voting to demonstrate the generational conflict regarding taxes and spending and show that aging shifts the tax burden from the retired to the working generation, reduces public education spending, and ultimately slows economic growth. We subsequently consider a legal constraint that aims to boost education spending: a spending floor for education. This constraint stimulates economic growth but creates a trade-off between current and future generations’ welfare. Finally, the quantitative implications of our results are explored by calibrating the model to the Japanese economy.     

How a race to the bottom can make you fat

This article measures the effect of fiscal competition on obesity rates in the United States through education and health spending. We hypothesize that fiscal competition to attract firms results in lower business tax revenues and higher public infrastructure spending which crowds out education and health spending leading to an increase in obesity rates. We empirically test this hypothesis. We find that there is significant fiscal competition to attract firms. Next, we show that when business tax revenues are lowered and public infrastructure spending favouring businesses increased, public health and education spending declines and obesity rates significantly increase. Thus, fiscal competition significantly contributes to obesity rates through the education and health spending channel.     

Public Investment and Economic Growth in Latin America: an Empirical Test

The paper analyzes the impact on economic growth of public investment spending and other relevant variables (such as human capital) for nine major Latin American nations over the 1983–93 period. The results suggest that both public and private investment spending contribute to economic growth. Overall central government consumption expenditures, on the other hand, are found to have a negative effect on private investment and growth. Finally, public expenditures on education and healthcare are found to have a positive and statistically significant effect on private capital formation and long–term economic growth. From a policy standpoint, the results suggest that indiscriminate cuts in public and private investment spending are likely to be counterproductive in the long run, and more importantly, scarce public expenditures should be channeled to the promotion of new human capital (via primary and secondary education) and the maintenance of existing human capital (through healthcare expenditures).     

Fiscal position and the financing of productive government expenditures: an application to Latin America

Government spending on public infrastructure, education, and health care can increase economic growth. However, the appropriate financing depends on a country’s fiscal position. We develop a two-sector endogenous growth model to explore how variations in the composition and financing of government expenditures affect economic growth. We find that, when tax rates are moderate, funding public investment by raising taxes may increase long-run growth. If existing tax rates are high, public investment is only growth enhancing if funded by restructuring the composition of overall public spending. Additionally, public investment that is debt financed can have adverse effects on long-run growth due to the resulting increases in interest rates and debt-servicing costs.