Volatility in Discretionary Public Spending and Economic Growth

A Cross Country Analysis

Bibliographic Data

ID21368259
AuthorsMuhsin Ali (0000-0003-2318-5012), Karim Khan (0000-0001-8689-9245)
Year2020
Pages45-68
Publication date2020-03-01
Open AccessYes
TypeARTICLE
VenueThe Pakistan Development Review (JOURNAL)
Journal identifiersISSN: 0030-9729
PublisherPakistan Institute of Development Economics (PUBLISHER • PK)
DOI10.30541/v59i1pp.45-68
OpenAlexW3040695178
LanguageEN
References cited10

Volatility in discretionary public spending has diverse implications for the overall economic performance of economies. In this study, we examine the impact of volatile non systematic discretionary public spending on economic growth. By employing cross-country data of 74 developed and developing economies, we find that volatility in non-systematic discretionary public spending has an adverse impact on economic growth. In particular, such impact is severe in the case of less developed economies. Our findings are robust to the problem of endogeneity. In order to ensure the accuracy of the results, we conduct sufficient sensitivity analysis by incorporating a bunch of potential control variables. In most of the cases, the results with regard to the policy volatility remain intact. This suggests that effective spending rules, i.e. permanent numerical limits, should be imposed on budgetary aggregates to restrain governments from the volatile use of discretionary spending. JEL Classification: H3; H5 Keywords: Volatility in Discretionary Public Spending, Economic Growth, Effective Spending Rule

Econometrics · Economics · Endogeneity · Macroeconomics · Monetary economics · Public economics · Public spending · Volatility (finance) · Fiscal Policies and Political Economy · Fiscal Policy and Economic Growth · Monetary Policy and Economic Impact

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