An investigation into the patterns of general government current expenditure shares of total expenditure, as well as patterns of optimality and sub-optimality, between developed and developed countries, has been undertaken. Discussion over this metric has largely been limited to publicized comments, the informal blogosphere and news commentary; this paper presents a contribution towards the subject. Using econometric methods and statistical analysis, a wide range of results are uncovered regarding the cross-developmental patterns of current shares, their optimum values and sub-optimality.
The first is that developed countries generally have higher current shares as a proportion of total government expenditure, than developing countries; but the variation of these shares across developing countries is significantly greater, although it is trending downwards over time. Secondly, although prima facie evidence shows that the optimum current shares for developed countries are greater than for developing countries, statistical robustness is elusive – most likely due to statistical and data limitations within the research. Thirdly, there is little evidence that the general deviation of current shares from optimum – that is, sub-optimum behaviour – significantly differs between developed and developing countries. Lastly, observed sub-optimum behaviour of current shares does not seem to be driven by government ineffectiveness.
Table of Contents
1. INTRODUCTION
2. LITERATURE REVIEW
3. METHODOLOGY
4. EMPIRICAL RESULTS
5. DISCUSSION
6. CONCLUSION
Research Objectives & Topics
This study aims to provide a comparative analysis of general government current expenditure shares across developed and developing countries, investigating patterns of optimality and sub-optimality, and their relationship with economic growth and institutional factors.
- Comparative analysis of public current expenditure patterns
- Assessment of growth-maximizing optimal expenditure shares
- Investigation of sub-optimality in government fiscal policy
- Evaluation of the role of government effectiveness in expenditure deviations
Excerpt from the Book
Wagner’s Law
Wagner’s (1883) law of increasing state activity is a popular theory of government expenditure. The theory predicts that as an economy grows, the government expands its role, and hence government size relative to the size of the economy grows as well. As explained by Ighodaro and Oriakhi (2010:186), three main factors for increased government spending were identified by Wagner. First, administrative and protective role of government increases as the development level of the economy increases. Second, government expenditures on “cultural and welfare” would rise, particularly on education and health, with the economy’s expansion. Implicitly, he assumed that the income elasticity of demand for public goods is more than unity. Lastly, progress in technology requires of developed nations governments to undertake certain economic services for which private sector may shy away from.
To empirically investigate this link between expenditure and national income, an examination of the income elasticity of expenditure is conducted. The condition for concluding Wagner’s hypothesis to be validated is that this estimated elasticity is greater than one, with a positive coefficient sign, and is of statistical significance (Hadjimatheou, 1976; Jackson, 1980; Diba, 1982). Using both cross-sectional and time series datasets, Wagner’s law has empirically been assessed for a broad range of developed and developing countries (Magazzino, 2010:3).
Summary of Chapters
1. INTRODUCTION: Presents the motivation for the study, highlighting concerns about high recurrent expenditure in various nations and outlining the primary aim of conducting a comparative technical analysis.
2. LITERATURE REVIEW: Examines theoretical and empirical literature related to determinants of government expenditure, focusing on Wagner’s Law, the Ratchet Hypothesis, and Endogenous Growth Models.
3. METHODOLOGY: Explains the empirical approach, including the definition of current expenditure, data sources from the IMF, and the econometric models used to estimate optimal shares and sub-optimality.
4. EMPIRICAL RESULTS: Presents the statistical findings regarding current expenditure shares, optimal values, and the speed of adjustment for the sampled developed and developing countries.
5. DISCUSSION: Synthesizes the empirical findings, interpreting the differences in variance between country groups and addressing the limitations regarding data availability and model complexity.
6. CONCLUSION: Summarizes the key findings, confirming that developed countries generally maintain higher current shares and suggesting directions for future research with broader samples.
Keywords
Public economics, government expenditure, current expenditure, Wagner's Law, fiscal policy, economic growth, sub-optimality, developing countries, developed countries, econometric analysis, government effectiveness, endogenous growth models, expenditure composition, budgetary allocation.
Frequently Asked Questions
What is the primary focus of this research?
The research focuses on the composition of government expenditure, specifically analyzing the patterns and optimality of public current expenditure shares in relation to total expenditure across different developmental groups.
What are the central themes discussed?
The central themes include the structural evolution of government spending, the relationship between expenditure composition and economic growth, and the empirical measurement of "optimal" government spending levels.
What is the main research question or objective?
The objective is to assess how current expenditure shares compare between developed and developing countries and to characterize the behavior of these shares with respect to growth-maximizing optimal levels.
Which scientific methodology is employed?
The study uses econometric and statistical methods, including time-series regression models, panel data analysis, statistical t-tests for mean differences, and F-tests for variance comparison.
What topics are covered in the main body?
The main body covers theoretical frameworks like Wagner’s Law, the Ratchet Hypothesis, and Endogenous Growth Models, followed by an empirical investigation into current expenditure shares and their determinants.
Which keywords best characterize this work?
The key terms include public economics, government expenditure, fiscal policy, Wagner’s Law, economic growth, and sub-optimality.
How does the study define current expenditure?
It adopts the definition provided in the IMF’s Government Financial Statistics (GFS) Manual, which includes spending on goods and services, interest payments, and current transfers such as subsidies and grants.
Does government effectiveness explain the variations in expenditure patterns?
The study finds that government effectiveness has low explanatory power and is statistically insignificant as a driver for the observed sub-optimal current expenditure patterns in the sample assessed.
What limitation does the author mention regarding the data?
The author highlights the scarcity of expansive, consistent time-series data for government current expenditure, which limits the number of observations and the complexity of the regression models that could be implemented.
- Quote paper
- Abel Gaiya (Author), 2016, Developmental comparative analysis of the nature of sub-optimal public current expenditure shares of total public expenditure, Munich, GRIN Verlag, https://www.grin.com/document/353593
