Fiscal Implications of Government Wage Bill Spending

34 Pages Posted: 13 Feb 2019

See all articles by Kamil Dybczak

Kamil Dybczak

International Monetary Fund (IMF)

Mercedes Garcia-Escribano

University of Chicago - Department of Economics

Date Written: January 2019

Abstract

This paper discusses the short- and medium-term fiscal implications of government wage bill spending. Working with a sample of 137 advanced, emerging and low-income countries, we use a panel VAR approach to identify differences in the dynamic behavior of revenues, non wage expenditures, and the overall fiscal balance in response to changes in the wage bill. We show that the interaction between wage bill changes and these three fiscal items is alike andvaries overtime. Higher wage bill spending does not revert in the medium term, but the initial worsening of the fiscal balance associated with it, though it persists, eventually halves as revenues increase while non-wage spending remains broadly unchanged. We also show that countries differ in how these three fiscal variables behave following wage bill changes and seek to explain this variation by a set of country characteristics, including the level of development, access to natural resources and public indebtedness levels.

Keywords: Fiscal policy, Public employment, Public Wages, Government Expenditure, General

JEL Classification: E24, E62, H60, H50

Suggested Citation

Dybczak, Kamil and Garcia-Escribano, Mercedes, Fiscal Implications of Government Wage Bill Spending (January 2019). IMF Working Paper No. 19/10, Available at SSRN: https://ssrn.com/abstract=3333734

Kamil Dybczak (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Mercedes Garcia-Escribano

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States

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