Determinants of Public Expenditure in Barbados: An Exploratory Study by Nlandu Mamingi and Nikita Bishop

Author(s): Central Bank Of Barbados

Created 15 Jan, 2018
Categories Working Papers
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This exploratory study attempts to ascertain and analyse the drivers of public expenditure in Barbados in the period 1980-2013 via aggregated and disaggregated approaches. Using the autoregressive distributed lag (ARDL) methodology à la Pesaran et al. (2001). The study uncovers the following key results. At the aggregate level, in the long run, real GDP, tax revenue, foreign direct investment, debt servicing, and unemployment positively affect public expenditure. On the contrary, budget deficit and foreign aid negatively affect public expenditure in the long run. The long-run results are qualitatively uncovered in the short run. At the disaggregate level, the capital expenditure results are in many instances the opposite of those for current expenditure. Where comparable, it is found that long-run estimates are predominantly larger than short-run estimates. As policy implications, it is important to determine the levels of tax revenue, public debt, FDI, foreign aid, budget deficit, and unemployment that are consistent with a healthy public expenditure, that is, the one which yields a sustainable economic growth, a non-runaway budget deficit and a manageable public debt.

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Copyright 2018 by Central Bank of Barbados