Fiscal Capacity, Democratic Institutions and Social Welfare Outcomes in Developing Countries

Mansoob Murshed, Brahim Bergougui, Muhammad Badiuzzaman, Mohammad Habibullah Pulok

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Abstract

The purpose of this paper is to gauge the various determinants of social sector spending captured by social protection and education spending in a cross section of developing countries, a subject on which there is scant empirical evidence. We hypothesize that fiscal capacity is necessary but not sufficient for resource allocation in this area, because the political will to do so must also be present. Using a panel data instrumental variable approach, we find that greater fiscal capacity robustly raises social spending in developing countries in the period 1990 to 2010. It is also strongly evident that rising democratisation enhances social sector spending; the presence of greater democracy and higher fiscal capacity could reinforce this effect. Our work also innovatively incorporates inequality into the analysis, finding that social expenditure is greater in more egalitarian societies. Military expenditure also appears to crowd out social protection expenditure, but not robustly.
Original languageEnglish
Pages (from-to)280-305
Number of pages26
JournalDefence and Peace Economics
Volume33
Issue number3
Early online date12 Sep 2020
DOIs
Publication statusPublished - 3 Apr 2022

Bibliographical note

© 2020 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group. This is an Open Access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives License (http:// creativecommons.org/licenses/by-nc-nd/4.0/), which permits non-commercial re-use, distribution, and reproduction in any medium, provided the original work is properly cited, and is not altered, transformed, or built upon in any way.

Funder

We are grateful to participants at the UNU-WIDER symposium on Political Economy of Social Protection in Developing Countries held in Mexico City, 8?10 February 2016, the UK DSA conference at Oxford, 12?14 September 2016, but especially Miguel Ni?o-Zaraz?a for detailed comments that have improved the paper. Comments from an anonymous referee of this journal also improved our analysis. This study was prepared within the UNU-WIDER project on ?The political economy of social protection systems?, which is part of a larger research project on ?The Economics and Politics of Taxation and Social Protection?. The views expressed in this paper are those of the author(s), and do not necessarily reflect the views of the Institute or the United Nations University, nor the programme/project donors. Publisher Copyright: © 2020 Informa UK Limited, trading as Taylor & Francis Group.

Keywords

  • Democratic Institutions
  • Fiscal Capacity
  • Social Protection
  • Expenditure

ASJC Scopus subject areas

  • Social Sciences (miscellaneous)
  • Economics and Econometrics

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