revenue raising is less likely to be successful in achieving lasting fiscal consolidation this
evidence is supportive of Tanzi’s [2001] argument that fiscal decentralisation may lead to
macroeconomic difficulties.
4.4 The composition of expenditure and revenue changes during consolidation attempts
We extend our analysis by splitting up the expenditure aggregates into their key components:
current expenditure (less interest payments) and capital expenditure19.
Table 6: Changes in expenditure components during general government consolidations
(each shown as % of GDP)
|
Current Expenditure |
Capital Expenditure | |||||||
|
All |
S |
F |
signif |
All |
S |
F |
signif | |
|
Central |
-0.40 |
-1.18 |
-0.04 |
*** |
-0.16 |
-0.14 |
-0.16 | |
|
Sub-Central |
-0.15 |
-0.49 |
-0.03 |
** |
-0.10 |
-0.16 |
-0.07 | |
|
Success Index: |
(3) |
(2) |
(1) |
(0) |
(3) |
(2) |
(1) |
(0) |
|
Central |
-1.18 |
-0.24 |
-0.07 |
0.35 |
-0.15 |
-0.24 |
-0.10 |
-0.18 |
|
Sub-Central |
-0.49 |
-0.37 |
0.09 |
0.26 |
-0.17 |
-0.15 |
0.09 |
0.01 |
Once again there is a clear correlation between the size of cuts in current expenditure and
success. On average, the cuts are significantly larger during successful consolidation attempts,
and across all tiers of government. Furthermore, the larger the cuts in current expenditure
achieved the greater the success of the consolidation attempt, and again this result holds at
each tier of government. At the central government level there is no significant difference in
the size of the cuts observed according to our measures of success. The pervasive nature of
these cuts across all consolidations suggests that cuts in central government capital
expenditure do not contribute to the success of a consolidation attempt.
The absolute size of the cuts in capital expenditure as a proportion of GDP are small relative
to the cuts in current expenditure, but it is important to note that the value of current
expenditure is roughly ten times larger than capital expenditure for the countries in our
sample, so the proportionate cuts in capital spending are actually relatively severe. This is
especially important when interpreting the figures for the sub-central tier, where around 40%
of the overall contraction in expenditure is borne by regional and local public investment
programs and where significantly larger cuts in capital spending occur during more successful
19 As before, payments made by central to sub-central tiers of government are stripped-out of current and capital
expenditure.
16