Public Expenditure and Growth
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World Bank, Washington, DC
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Given that public spending will have a
positive impact on GDP if the benefits exceed the marginal
cost of public funds, the present paper deals with measuring
costs and benefits of public spending. The paper discusses
one cost seldom considered in the literature and in policy
debates, namely, the volatility derived from additional
public spending. The paper identifies a relationship between
public spending volatility and consumption volatility, which
implies a direct welfare loss to society. This loss is
substantial in developing countries, estimated at 8 percent
of consumption. If welfare losses due to volatility are this
sizeable, then measuring the benefits of public spending is
critical. Gauging benefits based on macro aggregate data
requires three caveats: a) considering of the impact of the
funding (taxation) required for the additional public
spending; b) differentiating between investment and capital
formation; c) allowing for heterogeneous response of output
to different types of capital and differences in network
development. It is essential to go beyond
country-specificity to project-level evaluation of the
benefits and costs of public projects. From the micro
viewpoint, the rate of return of a project must exceed the
marginal cost of public funds, determined by tax levels and
structure. Credible evaluations require microeconomic
evidence and careful specification of counterfactuals. On
this, the impact evaluation literature and methods play a
critical role. From individual project evaluation, the
analyst must contemplate the general equilibrium impacts.
In general, the paper advocates for project evaluation as a
central piece of any development platform. By increasing the
efficiency of public spending, the government can
permanently increase the rate of productivity growth and,
hence, affect the growth rate of GDP.
Palabras clave
ABSENTEEISM, ACCOUNTING, ADMINISTRATIVE COSTS, ADVERSE EFFECT, AGGREGATE COST, AGRICULTURAL OUTPUT, ALLOCATION, AMOUNT OF RISK, AVERAGE GROWTH, BANKS, BENCHMARK, BENCHMARKING, BENCHMARKS, BENEFICIARIES, BENEFICIARY, BENEFITS OF PUBLIC SPENDING, BUDGET CONSTRAINT, BUSINESS CYCLE, CALCULATION, CALCULATIONS, CAPITAL ACCOUNT, CAPITAL ACCUMULATION, CAPITAL EXPENDITURES, CAPITAL FORMATION, CAPITAL SPENDING, CAPITAL STOCK, CAPITAL STOCKS, CASH TRANSFER, CD, CENTRAL BANKS, CENTRAL BUDGET, CENTRAL BUDGET OFFICE, CENTRAL GOVERNMENT, COMPLIANCE COSTS, COMPOSITION OF PUBLIC SPENDING, CONSUMERS, CONSUMPTION EXPENDITURE, CONSUMPTION TAXES, CONTINGENT LIABILITIES, CONTRACTUAL ARRANGEMENTS, COST INCREASES, COST-BENEFIT ANALYSIS, CURRENT PRICES, CUT SPENDING, DATA AVAILABILITY, DEGREE OF RISK, DEVELOPING COUNTRIES, DEVELOPMENT ECONOMICS, DISCOUNT RATE, DISCOUNT RATES, EARNINGS, ECONOMIC ACTIVITY, ECONOMIC ANALYSIS, ECONOMIC DEVELOPMENT, ECONOMIC EFFICIENCY, ECONOMIC GROWTH, ECONOMIC RATE OF RETURN, ECONOMIC UNCERTAINTY, EDUCATION SPENDING, EDUCATIONAL ATTAINMENT, EDUCATIONAL PROGRAM, EFFECTIVENESS OF PUBLIC SPENDING, EFFICIENCY OF PUBLIC SPENDING, EFFICIENCY OF RESOURCE USE, ELASTICITY, ELECTRICITY, EQUILIBRIUM, EXCHANGE RATE, EXPENDITURE GROWTH, EXPENDITURE PROGRAMS, EXPORT PERFORMANCE, FINANCES, FINANCIAL MARKETS, FISCAL MANAGEMENT, FISCAL POLICY, FISCAL POSITIONS, FLOATING EXCHANGE RATE, GDP, GDP PER CAPITA, GOVERNMENT CONSUMPTION, GOVERNMENT CONSUMPTION EXPENDITURE, GOVERNMENT EXPENDITURE, GOVERNMENT SPENDING, GROWTH RATE, HEALTH OUTCOMES, HEALTH PROGRAMS, HIGHER EXPENDITURE, HOUSEHOLD FINANCES, HOUSING, HOUSING PRICES, HUMAN CAPITAL, INCOME, INCOME DISTRIBUTION, INCOME EFFECT, INCOME GROUP, INCOME GROUPS, INCOME LEVEL, INCOME TAXES, INCOMES, INCREASE IN INCOME, INDEBTED COUNTRIES, INDEXATION, INEFFICIENCY, INFRASTRUCTURE DEVELOPMENT, INFRASTRUCTURE PROJECTS, INSTITUTIONAL CAPACITY, INSTRUMENT, INTERNATIONAL BANK, INVENTORY, INVESTMENT PROJECTS, INVESTMENT SPENDING, LABOR FORCE, LABOR MARKET, LITERACY, LOAN, LOCAL GOVERNMENTS, LOCAL NEWSPAPERS, LOW INCOME, LOWER INCOME, MACROECONOMIC ENVIRONMENT, MACROECONOMICS, MARGINAL COST, MARGINAL PRODUCT, MARGINAL TAX RATE, MARKET FAILURES, MARKET FORCES, MATH, MIDDLE INCOME COUNTRIES, MONETARY POLICY, MONETARY UNION, MONETARY UNIONS, NATIONAL BUDGET, PARTIAL EQUILIBRIUM ANALYSIS, PENSION, PENSION BENEFITS, PERMANENT INCOME, PERMANENT INCOME HYPOTHESIS, POLITICAL ECONOMY, PORTFOLIO, POVERTY RATES, PRESENT VALUE, PRICE CHANGES, PRIMARY EDUCATION, PRIVATE CAPITAL, PRIVATE CONSUMPTION, PRIVATE INVESTMENT, PRIVATE SECTOR, PRIVATE SECTOR PARTICIPATION, PROBABILITY, PRODUCTION FUNCTION, PRODUCTION INPUTS, PRODUCTIVE ASSETS, PRODUCTIVITIES, PRODUCTIVITY, PRODUCTIVITY GROWTH, PRODUCTIVITY INCREASES, PROGRAM EVALUATIONS, PROVISION OF GOODS, PUBLIC, PUBLIC BUDGETING, PUBLIC BUDGETS, PUBLIC CAPITAL, PUBLIC CONSUMPTION, PUBLIC DEBT, PUBLIC DEBT MANAGEMENT, PUBLIC EXPENDITURE, PUBLIC EXPENDITURE MANAGEMENT, PUBLIC FINANCES, PUBLIC FUNDS, PUBLIC INVESTMENT, PUBLIC INVESTMENT IN INFRASTRUCTURE, PUBLIC REVENUE, PUBLIC SCHOOLS, PUBLIC SECTOR, PUBLIC SECTORS, PUBLIC SERVICE, PUBLIC SPENDING, PUBLIC TRANSPORT, RATE OF RETURN, RATES OF RETURN, RECURRENT COST, RECURRENT COSTS, RECURRENT EXPENDITURES, RENTS, RETURNS, RISK AVERSE, RISK AVERSION, RISK TOLERANCE, ROADS, RULE OF LAW, SALES, SAVINGS, SECONDARY SCHOOL, SECONDARY SCHOOLS, SIDE EFFECTS, SOCIAL BENEFIT, STAKEHOLDER, STAKEHOLDERS, STOCKS, STREETS, SUBSTITUTION EFFECT, TAX, TAX COLLECTIONS, TAX RATE, TAX REVENUE, TAX SYSTEM, TAXATION, TOTAL FACTOR PRODUCTIVITY, TOTAL WELFARE COST, TRADE POLICY, TRADING, TRADING SYSTEM, TRANSITION ECONOMIES, TREASURY, USER CHARGES, UTILITIES, VOUCHER PROGRAM, VOUCHER PROGRAMS, WAGE, WAGE EXPENDITURES, WEALTH, WELFARE LOSS, WORTH