The Fiscal Vulnerability of Public Social Expenditures: Is Latin America Different?

Eduardo Lora

doi:10.4067/S0718-88702009000100001

Authors

Eduardo Lora Banco Interamericano de Desarrollo

DOI:

https://doi.org/10.4067/S0718-88702009000100001

Keywords:

Public Social Expenditure, Public Debt, Latin America, Primary Expenditures, Debt Services, Multilateral Debt, Defaults

Abstract

An unbalanced panel data of around fifty countries between 1985 and 2003 is used to estimate the vulnerability of public social expenditures (health and education) to other fiscal variables. The database allows comparisons between Latin America and the rest of developing countries. Public social expenditure is significantly lower in Latin America as share of GDP, although it has a higher share in primary expenditure. Public social expenditures in Latin America are more vulnerable to debt service, but are less sensible to changes in other types of public expenditure. As in other regions in the developing world, public social expenditure in Latin America shrinks when public debt stock increases. This effect is higher with multilateral debt obligations. In Latin America, debt defaults reduce the share of public social expenditures in total primary public expenditure.

Downloads

Download data is not yet available.

Author Biography

Eduardo Lora, Banco Interamericano de Desarrollo

Gerente del Departamento de Investigación y Economista Jefe (a.i.), Banco Interamericano de Desarrollo.

References

Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The Review of Economic Studies, 58(2), 277–297. https://doi.org/10.2307/2297968

Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, 68(1), 29–51. https://doi.org/10.1016/0304-4076(94)01642-d

Baqir, R. (2002). Social sector spending in a panel of countries (IMF Working Paper WP/02/35). International Monetary Fund.

BID. (2007). Vivir con deuda: Cómo contener los riesgos del endeudamiento público [Living with debt: How to contain the risks of public indebtedness] (Informe 2007). Banco Interamericano de Desarrollo.

Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115–143. https://doi.org/10.1016/s0304-4076(98)00009-8

Borensztein, E., & Panizza, U. (2006). The cost of default (IDB Research Department Working Paper WP/08/238). Inter-American Development Bank.

CEPAL. (2007). Panorama social [Social panorama]. Comisión Económica para América Latina y el Caribe.

Chauvin, N., & Kraay, A. (2005). What has 100 billion dollars worth of debt relief done for low-income countries? [Unpublished manuscript]. Princeton University; Inter-American Development Bank; World Bank.

Gupta, S., Dicks-Mireaux, L., Khemani, R., McDonald, C., & Verhoeven, M. (2000). Social issues in IMF-supported programs (IMF Occasional Paper 191). International Monetary Fund.

Heller, P., & Diamond, J. (1990). International comparisons of government expenditure revisited: The developing countries 1975–1986 (IMF Occasional Working Paper 69). International Monetary Fund.

Hicks, N. (1989). Expenditure reductions in high-debt countries. Finance and Development, 26, 35–37.

Hicks, N., & Kubisch, A. (1984). Recent experience in cutting government expenditures. Finance and Development, 21, 37–39.

Jaimovich, D., & Panizza, U. (2006). Public debt around the world: A new dataset of central government debt (IDB Research Department Working Paper 561). Inter-American Development Bank.

Lora, E. (2006). Public investment in infrastructure in Latin America: Is debt the culprit? (Inter-American Development Bank Working Paper 595). Inter-American Development Bank.

Lora, E., & Olivera, M. (2007). Public debt and social expenditure: Friends or foes? Emerging Markets Review, 8(4), 299–310.

Mahdavi, S. (2004). Shifts in the composition of government spending in response to external debt burden. World Development, 32(7), 1139–1157. https://doi.org/10.1016/j.worlddev.2004.01.011

Mauro, P. (1998). Corruption and the composition of government expenditure. Journal of Public Economics, 69(2), 263–279. https://doi.org/10.1016/s0047-2727(98)00025-5

Papagapitos, A. (1992). The effects of stabilization programs on the composition of public expenditure in developing countries: 1972–1988 [Unpublished doctoral dissertation]. Ohio State University.

Snyder, J., & Yackovlev, I. (2000). Political and economic determinants of changes in government spending on social protection programs [Unpublished manuscript]. Massachusetts Institute of Technology.