Public spending reallocations and economic growth across different income levels
Acosta-Ormaechea, Santiago and Morozumi, Atsuyoshi (2016) Public spending reallocations and economic growth across different income levels. Economic Inquiry . ISSN 1465-7295
This paper examines the effects of public spending reallocations on economic growth. Assembling a disaggregated public spending dataset of 83 countries over the 1970-2011 period, we show that spending reallocations towards education, from health and social protection, have significant growth-promoting effects across a wide range of countries' income levels. However, income heterogeneity matters, particularly when reallocations involve infrastructure spending. Specifically, a reallocation from this spending to education also promotes growth, albeit primarily when the income level is low. This occurs because the effects of infrastructure spending are particularly weak in low-income countries, possibly due to the low quality of governance.
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