consolidation attempts, as shown in the final row in Table 6. This reveals a clear downside of
the consolidation process, such cuts, where sustained can be expected to have a significant
adverse consequences for local service provision in the long run.
Table 7 presents a disaggregation of current expenditure into the government wage bill,
transfers and subsidies, and purchases of goods and services. Across all three categories of
expenditure larger expenditure cuts are associated with successful as opposed to failed
consolidation attempts. The results also highlight the statistically significant role of cuts made
at the sub-central level in each case.
Table 7: Changes in components of current expenditure during general govt. consolidations
(each shown as % of GDP)
|
Goods and Services20 |
Social Transfers & |
Wage Bill | ||||||||||
|
All |
S |
F |
signif |
All |
S |
F |
signif |
All |
S |
F |
signif | |
|
Central |
-0.06 |
-0.16 |
-0.01 |
** |
-0.21 |
-0.76 |
0.10 |
*** |
-0.14 |
-0.19 |
-0.12 | |
|
Sub-Central |
0.00 |
-0.09 |
0.05 |
** |
-0.06 |
-0.15 |
0.00 |
** |
-0.12 |
-0.22 |
-0.07 |
** |
|
Success Indx: |
(3) |
(2) |
(1) |
(0) |
(3) |
(2) |
(1) |
(0) |
(3) |
(2) |
(1) |
(0) |
|
Central |
-0.16 |
-0.02 |
-0.03 |
0.04 |
-0.83 |
0.02 |
0.05 |
0.25 |
-0.19 |
-0.24 |
-0.09 |
0.00 |
|
Sub-Central |
-0.09 |
0.00 |
0.05 |
0.12 |
-0.17 |
-0.15 |
0.09 |
0.01 |
-0.22 |
-0.22 |
-0.05 |
0.10 |
Cuts in social transfers and subsidies are particularly large and not surprisingly skewed
toward central government which plays the dominant role in these categories of expenditure.
Evidently, a large and distinct tightening of welfare programs by the central tier increases the
likelihood that a given consolidation will be successful. The role of the sub-central tier is
more important in the remaining elements of current expenditure: during successful
consolidations around one third of the total cuts in the purchases of goods and services and
more than half the cut the cut in the government wage bill stem from cuts made by the sub-
central tiers of government. In fact, the significant element of cuts in the government wage
bill relate solely to the sub-central tier, where the wage bill is cut by significantly larger
amounts during successful as opposed to failed consolidation attempts.
These are important results. Whilst previous studies have stressed the importance of reducing
the government wage bill as a key determinant of success, the prominent role of the sub-
central tier of government in this process has not previously been identified. A clear
20 Lack of appropriate disaggregated data leads us to exclude Australia from these tables.
21 Transfers and subsidies for Irish sub-central data includes inter-government transfers from the centre.
17
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