The Effect of Public Spending on Consumption: Reconciling Theory and Evidence

Recent empirical evidence from vector autoregressions (VARs) suggests that public spending shocks increase (crowd in) private consumption. Standard general equilibrium models predict the opposite. We show that a standard real business cycle (RBC) model in which public spending is chosen optimally can rationalize the crowding-in effect documented in the VAR literature. When such a model is used as a data-generating process, a VAR estimated using the artificial data yields a positive consumption response to an increase in public spending, consistent with the empirical findings. This result holds regardless of whether private and public purchases are complements or substitutes.

Social Risk of Public Spending Cuts in Scotland: Local Authority Experiences

This paper relates to work supported by the Joseph Rowntree Foundation which examines the way Scottish Local Authorities have approached budget cuts (Asenova, et. al., 2013). Starting with a discussion of notions of social risk, we discuss the heightened challenges faced by local authorities. We note that the literature on public sector innovation predict such pressures would cause local authorities to engage in short term decision making and adopt a static coping approach to risk mitigation which is likely to stifle innovation and obstruct the creation of more coherent and resilient localities. Although we find this to have happened in some areas, we discuss two cases where these challenges have promoted innovative and inclusive approaches to service re-design and delivery.

Yesterday’s Games: Contingency Learning and the Growth of Public Spending, 1890-1938

Neither democracy nor globalization can explain the doubling of the peacetime public share in many Western countries between World Wars I and II. Here we examine two other explanations that are consistent with the timing of the observed changes, namely, (1) a shift in the demand for public goods and (2) the effect of war on the willingness to share. We first model each of these approaches as a contingency-learning phenomenon within Schelling’s Multi-Person Dilemma. We then derive verifiable propositions from each hypothesis. National time series of public spending as a share of GNP reveal no unit root but a break in trend, a result shown to favor explanation (2) over (1).

Intergovernmental transfers and public spending in Brazilian municipalities

We estimate the effects of unconditional (full fiscal decentralization) versus conditional (partial fiscal decentralization) block grants on local public spending in Brazilian municipalities. Our results suggest that the effect of unconditional and conditional transfers do not differ statistically. Their combination promotes a full crowding-in effect on aggregate public spending — i.e., for $1 of unconditional and conditional grant receipts; we find $1 of additional local public expenditures, greater than the corresponding effect of local income, providing further evidence for the flypaper effect. Moreover, the effect of unconditional transfers on education (health) spending is smaller than the effect of conditional education (health) transfers but greater than the corresponding effect of local income. We consider four strategies to identify causal effects of federal grants and the local income on fiscal responses regarding Brazilian local governments: (i) a fuzzy regression discontinuity design, (ii) Redistributive rules of education funds, (iii) Oil and Gas production, and (iv) Rainfall deviations from the historical mean.

Poverty and income distribution in Latin America: on the complementarities between trade policy and social public spending

Incluye Bibliografía

Poverty and income distribution in Latin America: on the complementarities between trade policy and social public spending

Includes bibliography

Electoral and Financial Bookkeeping: A Comparison of Pre-Electoral Pledges on Public Spending and the Outcome of Post-Electoral Budget Debates

In the wake of the financial crisis, budgetary discipline has taken centre stage in politics. More than ever a country's budget mirrors the true policy preferences of the legislative majority beyond all political discourse and cheap talk. The paper sheds light on mandate fulfilment in the field of public spending and fiscal policy in general. Based on previous work on pledge fulfilment in Switzerland the paper compares publicised pre-electoral statements of MPs on public spending and the development of the public finances with their post-electoral legislative behaviour during budget debates and votes. The findings of the paper confirm the results of the aforementioned earlier studies and point to the potential of budgetary statements for future mandate fulfilment research.

State Capture from Below? The Contradictory Effects of Decentralisation on Public Spending

This study analyses the contradictory effects of decentralisation on public spending. We distinguish three dimensions of decentralisation and analyse their joint and separate effects on public spending in the Swiss cantons over 20 years. We find that overall decentralisation has a strong, significant and negative effect on the size of the public sector, thus confirming the Leviathan hypothesis. The same holds for fiscal and institutional decentralisation. However, the extent to which political processes and actors are organised locally rather than centrally actually increases central and decreases local spending. This suggests that actors behave strategically when dealing with the centre by offloading the more costly policies. The wider implication of our study is that the balance between self-rule and shared rule has implications also for the size of the overall political system.

Looking for a road to get out for poverty. Is the current allocation of public spending on education in Colombia helping?

This paper presents a methodology to explore the impact on poverty of the public spending on education. The methodology consists of two approaches: Benefit Incidence Analysis (BIA) and behavioral approach. BIA considers the cost and use of the educational service, and the distribution of the benefits among groups of income. Regarding the behavioral approach, we use a Probit model of schooling attendance, in order to determinethe influence of public spending on the probability for thepoor to attend the school. As a complement, a measurement of targeting errors in the allocation of public spending is included in the methodology.

Assessing public spending efficiency in 20 OECD countries

Mestrado em Economia Monetária e Financeira

Assessing public spending efficiency in 20 OECD countries

This study follows the framework of Afonso, Schuknecht, and Tanzi (2005), aiming to look at the public expenditure of 20 OECD countries for the period 2009-2013, from the per- spective of efficiency and assess if these developed countries are performing efficiently compared to each other. Public Sector Performance (PSP) and Public Sector Efficiency (PSE) indicators were constructed and Data Envelopment Analysis was conducted. The results show that the only country that performed on the efficiency frontier is Switzerland. The average input-oriented efficiency score is equal to 0.732. That is, on average countries could have reduced the level of public expenditure by 26.8% and still achieved the same level of public performance. The average output-oriented efficiency score is 0.769 denoting that on average the sample countries could have increased their performance by 23.1% by employing the same level of public expenditure.

Should Fiscal Policy be different in a Non-Competitive Framework?

Published as an article in: Journal of Monetary Economics, 2003, vol. 50, issue 6, pages 1311-1331.

Draft Proposed Public Transportation Routes for Waterville, ME

Currently, there is a public bus transportation route in Waterville, Maine. However, this system could be improved. Our goal was to use GIS to find optimal public transportation routes throughout the city based on given points of interest and high population density areas. Three different groups of points of interest were created in the North, West, and South sections of Waterville. Using the Network Analyst tool, which calculates optimal routes, using existing street data, based on the input of stops, barriers, and impedance, we ran an analysis of what we thought would be the routes that best served the greatest number of people. Two different sets of routes were found: one with length as the impedance (the shortest length between the selected stops was favored), and one with population density as the impedance (the roads with the highest population density were favored). Finally, the times of the resulting routes (given a constant speed limit of 25 mph) were calculated and evaluated.