Natural Income/Resource Rent and Composition of Public Spending
Philippot, Louis-Marie
Natural Income/Resource Rent and Composition of Public Spending - 2009.
66
In this paper, we investigate the impact of natural income/resource rent on public expenditure composition. Our hypothesis is that, when institutional quality is low, politicians have more discretionary power on the allocation of public resources. Then public expenditure composition tends to be modified in favour of two types of public spending : those which generate important political benefits and those which are favoured the most by politicians.We use the model of political-budget cycles developed by Drazen and Eslava (2005a) to support our hypothesis. In this model, politicians try to influence citizens by manipulating public expenditure composition (and not the level of government spending). In the empirical part of this article/paper, we estimate a fixed effects model in which we explain the share of a type of public expenditure in total public spending by several variables among them we have a measure of income/resource rent. We use rent data compiled by the World Bank and calculate income/rent from ten raw agricultural products. According to our results, natural resource abundance is associated with higher current expenditure especially subsidies. Natural income/resource rent seems to have no significant effect on public investment. It is even associated with lower spending on transport and communications (a proxy for investment in public infrastructure). Classification JEL : O13, E62
Natural Income/Resource Rent and Composition of Public Spending - 2009.
66
In this paper, we investigate the impact of natural income/resource rent on public expenditure composition. Our hypothesis is that, when institutional quality is low, politicians have more discretionary power on the allocation of public resources. Then public expenditure composition tends to be modified in favour of two types of public spending : those which generate important political benefits and those which are favoured the most by politicians.We use the model of political-budget cycles developed by Drazen and Eslava (2005a) to support our hypothesis. In this model, politicians try to influence citizens by manipulating public expenditure composition (and not the level of government spending). In the empirical part of this article/paper, we estimate a fixed effects model in which we explain the share of a type of public expenditure in total public spending by several variables among them we have a measure of income/resource rent. We use rent data compiled by the World Bank and calculate income/rent from ten raw agricultural products. According to our results, natural resource abundance is associated with higher current expenditure especially subsidies. Natural income/resource rent seems to have no significant effect on public investment. It is even associated with lower spending on transport and communications (a proxy for investment in public infrastructure). Classification JEL : O13, E62
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