Food Price Shocks and Government Expenditure Composition: Evidence from African Countries

The delicacy of socio-political consequences during the recent commodities' prices spikes has given rise to stabilising measures that might have had repercussions on public policy alternatives. This effect may be worrying for developing countries, which because of the importance of the share of imports in their households' basket, have observed a remarkable increase of their food import bills. This paper attempts to evaluate the effect of food price shocks on public expenditure in level and composition on 47 African countries between 1980 and 2011. After solving for endogeneity issues, our results show that food price shocks positively and significantly affect total government expenditure and the share of current government consumption in the total government expenditure. More precisely, an additional one standard deviation of the food price shock increase is associated to an increase of 0.06 standard deviation of the percentage of current government consumption in the total government expenditure. Interestingly, this effect highly depends on the vulnerability level. Future studies will use more disaggregated data of fiscal variables, including those on revenue, to better assess food security policies.