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Political instability, public investment and macroeconomic performance

Author

Listed:
  • F. Gulcin Ozkan

    (University of York and CEPR)

  • Mustafa Ismihan

    (Atilim University)

Abstract

This paper attempts to provide a framework to explain both the lower share of current spending in large fiscal adjustments and the potential expansionary effects of fiscal contractions. We distinguish between current spending and productivity enhancing public investments and analyze the potential determinants of the policy maker's choice for the composition of overall public spending. Using this framework, we also link the overall macroeconomic performance to the public spending decisions. Our results suggest that raising current spending at the expense of public investment is associated with less favourable performance in terms of not only inflation and output but also, interestingly, future ‘current'' spending.

Suggested Citation

  • F. Gulcin Ozkan & Mustafa Ismihan, 2005. "Political instability, public investment and macroeconomic performance," Economics Bulletin, AccessEcon, vol. 5(2), pages 1-12.
    • Handle: RePEc:ebl:ecbull:eb-04e60010
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    More about this item

    Keywords

    composition of public spending;

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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