Francesco Grigoli

Waste Not, Want Not : The Efficiency of Health Expenditure in Emerging and Developing Economies

Public health spending is low in emerging and developing economies relative to advanced economies and health outputs and outcomes need to be substantially improved. Simply increasing public expenditure in the health sector, however, may not significantly affect health outcomes if the efficiency of this spending is low. This paper quantifies the inefficiency of public health expenditure and the associated potential gains for emerging and developing economies using a stochastic frontier model that controls for the socioeconomic determinants of health, and provides country-specific estimates. The results suggest that African economies have the lowest efficiency. At current spending levels, they could boost life expectancy up to about five years if they followed best practices.

Output Gap Uncertainty and Real-Time Monetary Policy

Output gap estimates are subject to a wide range of uncertainty owing to data revisions and the difficulty in distinguishing between cycle and trend in real time. This is important given the central role in monetary policy of assessments of economic activity relative to capacity. We show that country desks tend to overestimate economic slack, especially during recessions, and that uncertainty in initial output gap estimates persists several years. Only a small share of output gap revisions is predictable ex ante based on characteristics like output dynamics, data quality, and policy frameworks. We also show that for a group of Latin American inflation targeters the prescriptions from typical monetary policy rules are subject to large changes due to output gap revisions. These revisions explain a sizable proportion of the deviation of inflation from target, suggesting this information is not accounted for in real-time policy decisions.

State-Owned Banks and Fiscal Discipline

State-owned banks may help to soften the financing constraints of public sector entities and consequently become a factor that hampers fiscal discipline. Using a panel dataset, we find that a larger presence of state-owned banks in the banking system is associated with more credit to the public sector, larger fiscal deficits, higher public debt ratios, and the crowding out of credit to the private sector. These results suggest that the lending practices of state-owned banks should be carefully assessed in any strategy to pursue fiscal discipline.

Making the Most of Public Investment in MENA and CCA Oil-Exporting Countries

Over the past decade, rising oil prices have translated into high levels of public investment in most MENA and CCA oil exporters. This has prompted questions about the efficiency of public investment in generating growth and closing infrastructure gaps, as well as concerns about fiscal vulnerabilities. When public investment is inefficient, higher levels of spending may simply lead to larger budget deficits, without sufficiency increasing the quantity or quality of public infrastructure in support of economic growth. This paper examines the efficiency of public investment in the MENA and CCA oil exporters using several techniques, including a novel application of the efficiency frontier analysis, estimates of unit investment costs, and assessments of public investment processes. The analysis confirms that these oil exporters have substantial room to improve public investment efficiency. Reforms in the public financial and investment management systems are needed to achieve this objective.

Public Expenditure in the Slovak Republic: Composition and Technical Efficiency

Good practice suggests that budget allocations should reflect spending priorities and that spending should provide cost-effective delivery of public goods and services. This paper analyzes the composition of public expenditure in the Slovak Republic. It also assesses the relative efficiency of spending in education and health. The Slovak Republic spends more on social benefits and less on wages compared to the EU and OECD average. While it manages to translate the low expenditures into outcomes in an efficient manner in the education sector, this is not true for health. Moreover, the recent increases in expenditure levels have not improved outcomes, suggesting that significant budgetary savings could be achieved through increases in efficiency.

Determinants and dynamics of schooling and child labor in Bolivia

This paper investigates the determinants of primary school enrolment, attendance, and child labour in Bolivia from 1999 to 2007, and attempts to analyse the interactions among these decisions over time. Although enrolment rates show a significant improvement, a high proportion of children do not attend school. The empirical results reveal that the increase in enrolment is led by indigenous children and those living in urban areas. Moreover, contrary to common belief, being extremely poor and indigenous are the main determinants of school attendance. Finally, although extremely poor children increased their school attendance, there was no reduction in child labour, which remains a relevant issue in Bolivia.

Quality of Government and Living Standards: Adjusting for the Efficiency of Public Spending

It is generally acknowledged that the government’s output is difficult to define and its value is hard to measure. The practical solution, adopted by national accounts systems, is to equate output to input costs. However, several studies estimate significant inefficiencies in government activities (i.e., same output could be achieved with less inputs), implying that inputs are not a good approximation for outputs. If taken seriously, the next logical step is to purge from GDP the fraction of government inputs that is wasted. As differences in the quality of the public sector have a direct impact on citizens’ effective consumption of public and private goods and services, we must take them into account when computing a measure of living standards. We illustrate such a correction computing corrected per capita GDPs on the basis of two studies that estimate efficiency scores for several dimensions of government activities. We show that the correction could be significant, and rankings of living standards could be re-ordered as a result.

MTEFs and fiscal performance: panel data evidence

In the last two decades more than 120 countries have adopted a version of a Medium-Term Expenditure Framework (MTEF). These are budget institutions whose rationale it is to enable the central government to make credible multi-year fiscal commitments. This paper analyzes a newly-collected dataset of worldwide MTEF adoptions during 1990-2008. It exploits within-country variation in MTEF adoption in a dynamic panel framework to estimate their impacts. The analysis finds that MTEFs strongly improve fiscal discipline, with more advanced MTEF phases having a larger impact. Higher-phase MTEFs also improve allocative efficiency. Only top-phase MTEFs have a significantly positive effect on technical efficiency.

Fiscal Policy in Latin America : Lessons and Legacies of the Global Financial Crisis

Latin America’s bold fiscal policy reaction to the global financial crisis was hailed as a sign that the region had finally overcome its procyclical fiscal past. However, most countries of the region have not yet rebuilt their fiscal space, despite buoyant commodity revenues and relatively strong growth in the aftermath of the crisis. Using the experience of Brazil, Chile, Colombia, Mexico, Peru, and Uruguay, this paper examines the lessons and legacies of the crisis by addressing the following questions, among others: How much did the 2009 fiscal stimulus help growth? What shortcomings were revealed in the fiscal policy frameworks? What institutional reforms are now needed to provide enduring anchors for fiscal policy? How much rebuilding of buffers is needed going forward?

Quality of Government and Living Standards

It is generally acknowledged that a governments output is difficult to define and its value is hard to measure. The practical solution adopted by national accounts systems is to equate output value to input costs, but well-documented inefficiencies in government activities make this approximation questionable. One solution is to purge from gross domestic product (GDP) the fraction of government inputs that is wasted. This note illustrates such a correction, computing corrected per capita GDP on the basis of two studies that estimate efficiency scores for several dimensions of government activities. Results show that the correction could be significant and reorder the rankings of living standards.