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Functional components of public expenditure, fiscal consolidations and the economic activity
This paper analyses how the functional components of public expenditure and spending-driven consolidations affect the economic growth, unemployment and income inequality. A dynamic panel data LSDVC estimator is employed over a sample of 15 European Union countries during the period 1990-2012. The empirical results show that real GDP growth decreases when fiscal austerity measures are implemented, especially if they are spending-driven. Cuts in public expenditure undermine economic growth, namely if they slash spending on public order, recreation and education. Spending cuts on education, in particular, affect the investment in human capital, harming not only growth but also economic, social and human development. The unemployment rate also proved to be significantly boosted when austerity measures restrict spending on education, while income inequality rises when social protection expenditures are cut.
History
School
- Business and Economics
Department
- Economics
Published in
Economics and PoliticsCitation
CASTRO, V., 2018. Functional components of public expenditure, fiscal consolidations and the economic activity. Economics and Politics, 30(1), pp. 124–150.Publisher
© WileyVersion
- AM (Accepted Manuscript)
Publisher statement
This is the peer reviewed version of the following article: CASTRO, V., 2018. Functional components of public expenditure, fiscal consolidations and the economic activity. Economics and Politics, 30(1), pp. 124–150, which has been published in final form at https://doi.org/10.1111/ecpo.12104. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions.Acceptance date
2017-10-18Publication date
2017-11-10ISSN
0954-1985Publisher version
Language
- en