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How large is the government spending multiplier? : Evidence from World Bank lending / Aart Kraay
World Bank Open Knowledge Repository (formerly "World Bank E-Library Publications") Available online
View online- Format:
- Book
- Government document
- Author/Creator:
- Kraay, Aart
- Series:
- Policy research working papers.
- World Bank e-Library.
- Language:
- English
- Subjects (All):
- Banks & Banking Reform.
- Capital investment.
- Debt Markets.
- Domestic investment.
- Economic change.
- Economic growth.
- Economic Stabilization.
- Public Sector Development.
- Public Sector Economics.
- Urban Economics.
- Local Subjects:
- Banks & Banking Reform.
- Capital investment.
- Debt Markets.
- Domestic investment.
- Economic change.
- Economic growth.
- Economic Stabilization.
- Public Sector Development.
- Public Sector Economics.
- Urban Economics.
- Physical Description:
- 1 online resource (46 pages)
- Other Title:
- How large is the government spending multiplier?
- Place of Publication:
- Washington, D.C., The World Bank, 2010
- System Details:
- data file
- Summary:
- This paper proposes a novel method of isolating fluctuations in public spending that are likely to be uncorrelated with contemporaneous macroeconomic shocks and can be used to estimate government spending multipliers. The approach relies on two features unique to many low-income countries: (1) borrowing from the World Bank finances a substantial fraction of public spending, and (2) actual spending on World Bank-financed projects is typically spread out over several years following the original approval of the project. These two features imply that fluctuations in spending on World Bank projects in a given year are in large part determined by fluctuations in project approval decisions made in previous years, and so are unlikely to be correlated with shocks to output in the current year. World Bank project-level disbursement data are used to isolate the component of public spending associated with project approvals from previous years, which in turn can be used to estimate government spending multipliers, in a sample of 29 aid-dependent low-income countries. The estimated multipliers are small, reasonably precisely estimated, and rarely significantly different from zero.
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