Fiscal Prudence and Economic Growth in Asia: The Role of Efficient Public Spending

Abstract

The present research is an attempt to study the role of public sector efficiencies in determining optimal fiscal size of the governments for selected Asian countries. Studying efficiency of public spending is important because efficient government spending leads to improved provision of public services like health, education, infrastructure, and welfare initiatives. Improving public sector efficiency will help to promote transparency and accountability which reduces the chances of corruption and wastage of scarce public resources. Using the panel data for 19 developing countries for years 1996-2022, efficiency augmented optimal size of government expenditures is calculated. Pooled Mean Group technique is employed to calculate the impact of efficiency on growth maximizing levels of government total spending, government consumption spending and government investment spending. Results establish strong impact of efficiency in public expenditures on optimal fiscal size. Other variables enhancing economic growth include capital stock and trade openness, while human capital has negative effects. Public sector efficiencies are found to reduce growth maximizing size of government spending. The optimal size of government total expenditure is estimated to be 25.19 %, while optimal fiscal size for government consumption expenditure and government investment expenditure are 14.04%, and 11.18 % respectively for developing Asian countries.