Composition of Government Expenditure, Human Capital Accumulation, and Welfare
IMF Working Papers, January 1, 2000
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- Composition of Government Expenditure, Human Capital Accumulation, and Welfare
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Bibliographic details
- Authors: John J Matovu
- Published: January 1, 2000
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451843255.001
Summary
- This paper uses a dynamic general equilibrium model calibrated to Ugandan data to examine the welfare effects of alternative scenarios of government expenditure and tax financing.
- Two expenditure types are considered:
- social spending that affects human capital;
- infrastructure expenditures that affect productivity.
- Core findings:
- social expenditures lead to higher economic growth depending on the form of financing;
- young generations benefit most from social spending financed by consumption taxes;
- agents do not substitute between human and physical capital as a result of changes in expenditure composition;
- improving the productivity of fiscal expenditure is both growth and welfare enhancing.
Findings and Projections
- Social spending can raise economic growth, conditional on how it is financed.
- Financing social spending with consumption taxes yields the largest benefits for young generations.
- No observed substitution between human capital and physical capital when expenditure composition changes.
- Enhancing the productivity of fiscal expenditure improves both growth and welfare.
Policy Recommendations and Implications
- Consider prioritizing social spending that directly affects human capital accumulation, with attention to financing mechanisms.
- Consumption-tax financing of social spending merits consideration because it delivers disproportionate benefits to younger cohorts.
- Policies aimed at improving the productivity (efficiency) of fiscal expenditures are recommended, as they are both growth and welfare enhancing.
- Given the lack of substitution between human and physical capital, policymakers should treat investments in human capital and infrastructure as complementary rather than interchangeable.
Subjects and Keywords
- Subject: Consumption taxes, Education spending, Expenditure, Health care spending, Human capital, Labor, Taxes
- Keywords: Africa, age-consumption profile, aggregate consumption, capital stock, Consumption taxes, Education spending, expenditure policy change, financing expenditure, government expenditure, government investment expenditure, growth, Health care spending, Human capital, infrastructure expenditure, physical capital, policy reform, public expenditure, Sub-Saharan Africa, tax financing, welfare, WP
Content in this bundle
- Composition of Government Expenditure, Human Capital Accumulation, and Welfare - WP/00/15