Determinants of Government Consumption Expenditure in Developing Countries: A Panel Data Analysis
The paper focuses on the recent pattern of government consumption expenditure in developing countries and estimates the determinants which have influenced government expenditure. Using a panel data set for 111 developing countries from 1984 to 2004, this study finds evidence that political and institutional variables as well as governance variables significantly influence government expenditure. Among other results, the paper finds new evidence of Wagner's law which states that peoples' demand for service and willingness to pay is income-elastic hence the expansion of public economy is influenced by the greater economic affluence of a nation (Cameron1978). Corruption is found to be influential in explaining the public expenditure of developing countries. On the contrary, size of the economy and fractionalization are found to have significant negative association with government expenditure. In addition, the study finds evidence that public expenditure significantly shrinks under military dictatorship compared with other form of governance.
Keywords: Government expenditure; Corruption; Fractionalization; Governance; Political institutions and Extreme bound analysis
JEL classification: E01, E02, E61, E62, H2, H4, H5, H6, O11 and O5.
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