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).     

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.     

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。     

Optimal military spending in the US: A time series analysis

This paper extends previous work on the optimal size of government spending by including nested functional decompositions of military spending into consumption and investment. Post World War II US data are then used to estimate nested non-linear growth models using semi-parametric methods. As expected, investments in military and non-military expenditure are both found to be productive expenditures with respect to the private production. Moreover there is little evidence to suggest that current military spending is having a negative impact on economic growth in the US, while civilian consumption only tends to have only a weak impact. This does not imply that society will necessarily benefit from a reallocation of more spending to the military sector, nor that it is the best way to achieve economic growth.     

Public capital formation and labor productivity growth in Chile

Following the lead of the endogenous growth literature, this article analyzes the impact on labor productivity growth of public and private investment spending in Chile. Using cointegration analysis, the results of the dynamic labor productivity function for the 1960–95 period show that (lagged) public and private investment spending, as well as the rate of growth in exports, has a positive and highly significant effect on the rate of labor productivity growth. The estimates also indicate that increases in government consumption spending have a negative effect on the rate of labor productivity growth, thus suggesting that the composition of government spending may also play an important role in determining the rate of labor productivity growth. The findings call into question the politically expedient policy in many Latin American countries of disproportionately reducing public capital expenditures to meet targeted reductions in the fiscal deficit as a proportion of GDP.     

Government size,composition of public spending and economic growth in Brazil

The performance of the fiscal policy is largely affected by the relationship between government size, composition of public spending and economic growth. We use a theoretical framework to find optimal relations among these variables and confront them with a panel data for the Brazilian states. Private capital and government spending are substitute inputs in production as the Brazilian states require provision of public spending to fill gaps in the underdeveloped private sector. Public investment and current government expenditures are combined in fixed ratios in the overall government spending due to strong rigidity of the public budget. The optimal share of public investment is considerably lower than current expenditures, as occurs in developing countries characterized by low economic dynamism. Finally, the average tax burden from the data is below the estimated optimal level, meaning that there is space for increasing tax rate without harming economic growth for some Brazilian states.     

Testing separability of public consumption in household decisions

In this paper we propose a sequential strategy, based on the microeconomic approach of the demand theory, in order to test for separability between private and public consumption. The aim of the present work is to verify, using a conditional almost ideal demand system, whether the different components of public consumption exert conditioning effects on the allocative structure of private spending. The empirical estimation of the model and the separability tests are developed for both a demand system in five functional categories of private spending, and for a demand system in six categories, where the private expenditures on those goods and services which can also be offered by the public sector are enclosed in a single functional category. The results of the separability tests, obtained using UK data for the 1974–2000 period, show that public individual consumption plays an important role in modifying consumer choices, while public collective consumption does not affect private consumption behaviours. The relationships between the different components of private spending and public individual consumption are both of substitutability and complementarity; in particular, we find that public individual consumption and the corresponding private expenditures on ‘Health, education, recreation and social protection’ are complements.     

我国政府支出和公共投资对私人投资的效应分析

首先采用Diamond模型对公共投资及各项政府支出对私人投资影响进行理论分析;然后利用1980~2005年间的数据,运用协整检验、单方程误差修正模型分析了我国政府支出和公共投资及各项政府支出对私人投资的长短期效应;经验结果表明无论从长期还是短期看政府支出挤出了私人投资而公共投资则挤入了私人投资,国防支出和行政管理支出在长期和短期都挤出了私人投资,社会文教支出长期挤入了私人投资,短期挤出了私人投资。     

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.     

Policy induced increases in private healthcare financing provide short-term relief of total healthcare expenditure growth: Evidence from OECD countries

Healthcare reforms have long been advocated as a cure to the increasing healthcare expenditures in advanced economies. Nevertheless, it has not been established whether a market solution via private financing, rather than public financing, curb aggregate healthcare expenditures. To our knowledge, this paper is the first that quantifies the impact of reforms that significantly increases (decreases) the private (public) share of healthcare financing on total healthcare expenditures relative to income in 20 OECD countries. Our reform measure is based on structural break testing of the private share of total expenditures, and verification using evidence of policy reforms. To quantify the effect of these reforms we apply Propensity Score Matching and Inverse Probability Weighted regression analysis. Over a 5-year evaluation period the reforms lead to an accumulated cost saving 0.45 percentage points of GDP. The yearly effects of the reforms are largest in the first years in the post-reform period and decreases in size as a function of time since the reform. Our findings suggest that the investigated healthcare reforms have a relatively short-lived effect on aggregate health spending relative to GDP. The findings are robust to various sensitivity tests.     

Diaspora and government welfare spending: Do migrant remittances increase public social protection?

This paper contributes to the debate on the impact of migrant remittances on welfare spending. It empirically examines the influence that remittances have on public social protection (SP) expenditures using macrolevel panel data on a sample of 38 high‐ and middle‐income countries over the period 2005–2014. The paper finds that remittances have a negative influence on public SP expenditures, suggesting that they serve as a private substitute to public SP. The results highlight the importance of remittances to government welfare spending and sustainable development.     

Discretionary fiscal policy and economic activity in Greece

This paper investigates the effects of discretionary fiscal policy changes on economic activity and its subcomponents in Greece in the period 2000–2011. Changes in government spending and net taxes have Keynesian effects. An increase in government consumption has the most pronounced positive effects on output growth, private consumption and non-residential investment, while it reduces residential investment. Cuts in the public investment programme crowd in private investment, but are associated negatively with the net exports ratio. Both indirect and direct tax hikes lower private consumption, private investment and output growth. However, higher direct taxes by lowering disposable income they reduce import demand, thus, improving the trade balance.     

Distributional effects of public policy choices

This paper examines the effects of a budget-neutral public spending allocation between public investment and private investment subsidy on inequality dynamics and intergenerational mobility in an environment with heterogeneous households and incomplete capital market.     

Fiscal policy, long‐run growth, and welfare in a stock‐flow model of public goods

Abstract.  We introduce public capital and public services as inputs in an endogenous growth model. We show that the growth rate depends on the apportionment of tax revenues between the accumulation of public capital and the provision of public services. When public spending is financed by proportional income taxes, the growth rate, the level of public spending as a proportion of GDP, the level of investment in public capital as a proportion of total public spending, and the level of private investment as a proportion of total private spending all are lower in the equilibrium outcome than in the optimal outcome. JEL classification: E62, O40     

Public and Private Investments in Greece: Complementary or Substitute ‘Goods’?

This paper investigates whether government investment spending exerts a positive or a negative effect on private investments. Time-series data for Greece as well as the methodology of cointegration suggest that, over the period 1948-80, public investment spending exerted a positive effect on private investments, while over the period 1981-96, the relationship turned out to be negative. Empirical results indicate that the large increase of the public share in the total investment process tended to crowd out private investments and to jeopardize the growth process of the economy.     

GOVERNMENT CONSUMPTION AND THE COMPOSITION OF PRIVATE EXPENDITURE: A CONDITIONAL ERROR CORRECTION MODEL

In this paper we provide empirical evidence of the relationship between government purchases and private expenditure by adopting a microeconomic approach. Using UK quarterly data, a long‐run demand system conditioned to the public sector is obtained by specifying a vector error correction model in which government consumption is assumed as an exogenous I(1) forcing variable. Our findings reject the hypothesis of separability of individual preferences between public and private expenditures, with simultaneous crowding‐out/in effects. Moreover, crowding‐out effects of government consumption on private spending are found to be larger for those goods and services that produce similar utility.     

Current expenditure upswings in good times and public investment downswings in bad times? New evidence from developing countries

Anecdotal evidence suggests that policymakers usually cannot resist the temptation of spending more on current expenditure (e.g., wages, transfers) in good times and mostly pick public investment to adjust during bad times. In this paper, we answer the following questions: do current expenditures and public investment react differently to the business cycle? If so, why? In a sample of more than 100 developing countries and 30 developed countries observed between 1980 and 2014, a new empirical regularity specific to developing countries is identified: upswings are associated with increases in current primary expenditures only, while public investment falls and current spending remains acyclical during downturns. Evidence is also presented that this asymmetrical response is more pronounced in countries where incumbent politicians face shorter time horizons and weak institutions. Other types of determinants traditionally discussed in the literature have limited explanatory power.     

Guns,highways and economic growth in the United States

Given its significant policy implications, the nexus between public expenditures and economic growth has been the subject of an extensive and often emotive theoretical and empirical debate. The nexus between two types of public expenditures and economic growth is examined in this paper using both linear and nonlinear causality tests. Both spending on highways and on defence are regarded, albeit with not the same intensity of conviction, as useful counter-cyclical policy instruments and as stimuli to economic growth. Findings reported herein from both linear and non-linear causality tests offer evidence in support for the growth enhancing properties of the former type of public spending but not so in the case of military expenditure.     

IS GOVERNMENT SPENDING STIMULATIVE?

This paper develops and implements a neoclassical model of fiscal policy. The paper's main empirical hypothesis is that government non-military investment spending is more expansionary than is either government consumption or military investment. The paper utilizes annual data to support the hypothesis. It finds that output "multipliers" for government non-military investment significantly exceed unity while multipliers for government consumption and military investment lie below unity. The paper also finds that public sector deficits—both actual and cyclically adjusted—contain minor explanatory power for output when one controls for the effects of non-military investment.     

China's Growing Government Debt in a Computable Overlapping Generations Model

This paper simulates the effects of China's growing government debt in a computable equilibrium model of overlapping generations. Our model assumes that the government increases debt to finance its spending in the short run, and then increases taxes or cuts spending to keep the debt–GDP ratio constant. The spending‐driven government debt increases public capital and output in the short run, but decreases private investment, total capital stock, output, and net exports in the long run, and makes the future generations worse off. Among various means of debt control, a decrease in government spending seems to be the least harmful to private investment, capital stock, and output while an increase in capital taxation is most detrimental.