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Shifts in the Composition of Government Spending in Response to External Debt Burden

Authors
Journal
World Development
0305-750X
Publisher
Elsevier
Publication Date
Volume
32
Issue
7
Identifiers
DOI: 10.1016/j.worlddev.2004.01.011
Keywords
  • Developing Countries
  • External Public Debt
  • Public Finance
  • Public Spending Composition
Disciplines
  • Economics
  • Political Science

Abstract

Abstract This paper examines the effects of external public debt burden on the composition of public spending in a sample of 47 developing countries for 1972–2001. We specify a system of equations for the relative spending shares of six economic categories and estimate it using several estimation methods and samples. We find support for the adverse effect of the debt burden on “capital expenditure” in the full sample and in the Middle East-North Africa and sub-Saharan Africa subsamples where the debt burden was relatively high. Among components of “current expenditure,” increased debt burden shifted the shares against “nonwage goods services” and “subsidy and transfers” while leaving the share of politically sensitive category of “wages and salaries” unscathed in most cases.

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