Public Expenditure

Public expenditure comprises the expenditures made by the entities of the public sector. These expenses are usually divided into current expenditure and capital expenditure. Public spending, such as taxes, are fiscal policy instruments that allow the State to intervene in the economy.

Below are studies that examine some of the most relevant aspects related to public spending in Latin America.

The provision of infrastructure in Latin America: Tendencies, investments and financing -- January 2009

Lucioni L.

Of all forms of investment, the investment in infrastructure is of particular interest since it conditions and goes ahead in time of private investment in other sectors. Infrastructure services such as electric energy, transports, telecommunications, water supply and treatment are essential for household activity and economic production. To provide infrastructure services that satisfy the needs of companies and families is one of the most important tasks of economic development and a responsibility of governments to be able to implement them.

Eficiência do gasto público na América Latina: uma análise comparativa a partir do modelo semi-paramétrico com estimativa em dois estágios -- April 2008

Ribeiro M.

O trabalho procura avaliar a eficiência da despesa pública numa comparação entre dezessete países da América Latina para o período entre 1998 e 2002. Inicialmente, a partir de indicadores econômicos e sociais de cada país, foi construído um índice composto como medida do desempenho dos serviços públicos. Para avaliação da eficiência, o índice composto foi confrontado com os gastos de consumo do governo geral mediante a utilização de um modelo empírico semi-paramétrico de dois estágios (método DEA, no primeiro estágio, e regressão truncada, no segundo estágio). As evidências mostraram que Costa Rica, Uruguai e Chile obtiveram os melhores resultados tanto no desempenho dos serviços como na eficiência do gasto público.

Coordination of public expenditure in transport infrastructure: analysis and policy perspectives for Latin America -- January 2007

Cárcamo-Díaz R. y J. Goddard

Multinational transport infrastructure (MTI) projects are fraught with coordination issues. This paper contributes by identifying the key issues necessary for effective MTI coordination, analyzing them using economic theory and putting them into perspective within the framework of major ongoing coordination efforts for MTI in Europe and Latin America. Specifically, this paper carries out the following. First, after mentioning the importance of transport infrastructure for growth and integration, we describe the characteristics of transport networks that make coordination essential. Second, we motivate the need for public funding of MTI projects. Third, we analyze interaction between countries in MTI projects using game theory, highlighting how coordination problems arise in both static and dynamic settings, focusing on the Stag Hunt and iterative-move coordination games under perfect information. Fourth, we evaluate the experience of the Trans-European Transport Networks (TENT), a key element of European transport policy, trying to identify lessons that might be useful for ongoing coordination efforts in Latin America.

Fiscal policy and social protection -- January 2006

Aldunate E. y R. Martner

The shortcomings of social protection in Latin America and the Caribbean highlight the need for more active fiscal policy in this area. Although economic growth and decent employment are sine qua non requisites of social progress, the requirements of public spending funding are unavoidable in the medium term.

In this paper, three ways of achieving this goal are studied. The first one is the improvement of the tax gap, since in most countries of Latin America and the Caribbean the tax burden is lower than its potential. The second is to build systems that can actually surpass rigidities and reallocate public spending, thus helping to raise standards. The third is the generalization of evaluation mechanisms of social spending to improve efficiency and effectiveness of projects and programs.

Options to Face the Bias Against Public Investment -- July 2005

Martner R. y V. Tromben

In some countries of Latin America and the Caribbean, the decline in public investment has taken alarming proportions, partly because of the hardness of the recent tax adjustments. This document discusses the options for reducing the bias against public investment in periods of fiscal consolidation. To adapt the private sector accounting practices, where what counts is the depreciation of the investment and not the spending itself.

These options include the "golden rule" of public finances, the widespread application of accounting concepts in the new manual of public finance, the modification of the accounting coverage of the fiscal targets, the development of public-private partnerships and implementation of structural budget balance targets. None of these options by itself ensures better performance of public investment without explicit political support to infrastructure development. Hence the importance of a comprehensive agenda, which is complemented with the other proposals made by ECLAC: the application of specific taxes on hydrocarbons for the infrastructure, and separate accounts for projects of multilateral development banks.

Investment for the provision of public services and its financing in Latin America and Caribbean: recent evolution, present situation an policies -- November 2004

Lucioni L.

Today there is a broad consensus about the positive relation between investment for the provision of public services, the reduction of poverty, economic growth and competitiveness. Despite this knowledge, in Latin America and the Caribbean there are still significant unmet needs for investment and improving the delivery of services

There are three basic sources for the financing of infrastructure: governments with own resources, flow of private capitals and loans from multilateral development banks (MDB). In determined periods and under different circumstances the sources mentioned have contributed to a lesser or greater proportion to the development of infrastructure in the countries of the region. However, today the need for new investment and the maintenance of stock broadly exceed the funds that, on one hand, governments can contribute with their own resources, and, on the other hand, are significantly higher than those currently provided by the private sector and the MDBs.


Public infrastructure and fiscal sustainability in Latin America: incompatible objectives? -- June 2011

Carranza L., C. Daude y Á. Melguizo

Latin America has a significant backlog in the provision of infrastructure, due to insufficient public investment not offset by the private sector. This paper examines trends in infrastructure investment in six major Latin American economies and their relationship with fiscal frameworks, especially with the fiscal rules.


Ancestry or descendants? On intergenerational educational mobility in Latin America -- March 2011

Daude C.

The persistence in educational attainment between generations in Latin America comes from the high returns to education, the modest progression of public investment in human capital and from a lack of access to adequate financing. Education and other social policies that promote upward mobility are discussed in this paper.


The Economy of the Possible: Pensions and Informality in Latin America. -- January 2011

Da Costa R., J. R. de Laiglesia, E. Martínez y Á. Melguizo

Social protection coverage is quite low in Latin America. This situation, irrespective of the type of pension scheme, represents a challenge for public policy since these low levels of affiliation and irregular contribution histories indicate that pensions will be insufficient in the coming decades. This paper describes the relationship between pension protection and labor informality in Bolivia, Brazil, Chile and Mexico by income level, using several rounds of national household surveys. The analysis highlights that labor formality is limited, even among the middle and the high income groups. Based on this prognosis, we discuss some alternative pension reforms.


Achieving Higher Performance: Enhancing Spending Efficiency in Health and Education in Mexico - November 2009

Schwellnus C.

Despite progress over the past two decades Mexico?s health and education indicators remain well below the average of the OECD and some of its Latin American emerging market peers. Health insurance coverage is incomplete, especially for low-income families, and access to health services is highly uneven. There are several separate vertically integrated insurance networks, which increases administrative costs and results in an inefficient use of facilities. In education, lower secondary schools enroll only two thirds of the relevant age group and the quality of education is low, as indicated by poor PISA scores. This reflects poor teaching quality, a consequence of non-transparent teacher selection processes until recently, and limited school autonomy in budgeting, instruction and personnel decisions. Accountability to the government and parents is also low as there is no national exit exam after secondary education and the existing evaluation schemes are fragmented. Recent health and education reforms have started to address these issues, but more needs to be done to increase the efficiency of spending by increasing the coverage of health insurance, reducing the fragmentation of the health system, increasing enrolment in lower secondary education, and improving the quality of teaching.

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The effectiveness of education and health spending among Brazilian municipalities - July 2009

De Mello L. y M. Pisu

This paper uses a large dataset combining census, household survey and budgetary data for nearly 4.000 Brazilian municipalities to estimate the impact of government spending on education and health outcomes. We deal with the multi-dimensional nature of the population's social status by estimating structural equation models with latent variables using a limited-information two-stage least square (2SLS) estimator. Robustness of the baseline regressions to heterogeneity in the data is assessed on the basis of quantile regressions. The main empirical findings are that government spending is a powerful determinant of education outcomes, but this is not the case for health, and that spending on non-education programmes are also at least as important. In addition, there appears to be scope for gains in economies of scale in the provision of education and health care services, at least for selected segments of the conditional distribution of social outcomes. Finally, there are cross-sectoral effects in service delivery: health (education) outcomes affect the population's education (health) status. This Working Paper relates to the 2009 OECD Economic Survey of Brazil (

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Public Spending on education in Latin America: Does it pay? - October 2008

Zoido P.

Education is one of the most important determinants of economic growth. The benefits of education go beyond academics, contributing to the economic objectives of growth and productivity, as well as social objectives such as health and social cohesion. In a highly competitive globalized world economy, public spending on education is therefore even of more importance.


Social Security Reform in Brazil. Achievements and Remaining Challenges - December 2006

De Mello L. y F. Giambiagi

This paper reviews the main elements of social security reform in Brazil since 1998 and discusses areas where further policy action is yet to be taken to ensure the sustainability of the social-security system over time. Outlays on pensions paid to private-sector workers have risen as a result of population ageing and the increase in the value of the minimum wage in real terms, to which the minimum pension is linked. Some features of existing social protection programmes, including means-tested old-age and disability-related benefits, reduce the incentives facing workers to seek social security coverage. At the same time, an expansion of the base of contributions to social security has been constrained by widespread labour informality. Further reform will therefore need to focus on options for containing the rise in social security spending while tackling labour informality so as to broaden the base of contributions.

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Education Attainment in Brazil. The Experience of FUNDEF. -- April 2005

De Mello L. y M. Hoppe

For many years, Brazil lagged behind other middle-income countries in terms of school enrolment rates. But since 1998 policies have aimed at bridging this gap, in particular, with the implementation of FUNDEF, a fund for financing sub-national spending on primary and lower-secondary education. Using state- and municipality-level data during 1991-2002, this paper shows that FUNDEF played a key role in the increase in enrolment rates over the period, particularly in small municipalities, which rely more heavily on transfers from higher levels of government as a source of revenue. These findings underscore the importance of FUNDEF in eliminating supply constraints to the improvement of education attainment. Enrolment rates are now nearly universal for primary and lower-secondary education. Emphasis should therefore be placed on policies to improve the quality of services and to remove supply constraints to the expansion of enrolment in upper-secondary and tertiary education.

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The Brazilian Pension System. Recent Reforms and Challenges Ahead. - August 2002

Bonturi M.

Brazil's public pension expenditure is about 9 per cent of GDP, above the OECD average. Given that OECD countries are generally not only wealthier, but also significantly older, Brazil's pension expenditures are clearly excessive, draining resources away from other areas, such as much needed social investment in health and education. Beyond its fiscal impact, the Brazilian pension system is also unjust. About half of total pension expenditure is paid to former civil servants, which account for only 5 per cent of total retirees. Given the demographic challenges Brazil is likely to face in the next decades, authorities have started to implement a series of reforms. The general regime available to private sector workers underwent major changes in 1999, which will help ensure its long-term actuarial and financial balance. However, problems remain concerning the growth of the informal economy, the weight of non-pension benefits financially imputed to the regime and the mechanisms for ...

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Public Spending in Mexico. How to Enhance Its Effectiveness. - March 2001

Bonturi M. y B. Larre

Public sector reforms and a refocusing of spending, partly through privatisation, have created a leaner and more effective government in Mexico. Primary expenditure, at around 18 per cent of GDP in 1999, is less than half the average for the OECD. At the same time, there are important spending requirements to create the basis for strong sustainable growth over the medium term. The backlog in basic infrastructure is considerable and areas such as education and health will require a steady expansion of budget resources. Specific measures to fight poverty are also needed. Inadequate tax resources and a heavy reliance on volatile oil-related revenue have been important factors impeding the development of essential public programmes. In this respect, given the sizeable marginal economic and social benefits of increasing spending in the above areas, it would be appropriate to raise the low tax-to-GDP ratio over the short to medium term. It is also essential that public spending be ...

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