Active • November 01, 2017
Improving the quality of public expenditure in developing countries is essential for their economic development. For example, public expenditure contributes to the financing of development by providing additional fiscal space, in a similar way to higher tax revenue mobilization. This improvement requires the identification of the factors which contribute to the quality of public expenditure.
FERDI's research initially focused on the construction of a uni-dimensional indicator of public expenditure efficiency. Subsequently, different methods were used to assess the efficiency of public spending. Latterly, the research has estimated the effects of various factors on this efficiency by focusing particularly on the debt effect
At the end of 2017, AFD asked FERDI to conduct a study on the identification of factors which contribute to the quality of public spending. This study was prolonged in 2018, 2019, and 2020.
The study’s objective is to measure the overall efficiency of public spending in developing countries and to identify the factors influencing it. For this purpose, the authors first constructed a uni-dimensional indicator of public expenditure efficiency. They then used different methods to assess the efficiency of public spending. Finally, they estimated the effects of some factors on that efficiency, focusing in particular on the debt effect.
One of the conclusions of the study is that the way public spending is financed influences its efficiency: financing through the mobilization of domestic tax revenues should be given priority over debt.
This conclusion supports the idea that governments tend to spend the money raised from taxpayers more efficiently, since they are more accountable, and this may influence the likelihood of re-election. Also, taxpayers will be more likely to contribute if they feel that the contribution is worthwhile. This creates a virtuous circle.