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The (In)Efficiency of Public Spending

Chapter 3

Authors: Alejandro Izquierdo, Carola Pessino

All levels of government will have to learn to spend more wisely

Highlights

Wasteful government spending adds up to 4.4 percent of Latin America and the Caribbean’s GDP.
Latin America and the Caribbean needs to spend better by switching from wasteful to efficient expenditure that contributes to growth without adding to inequality.
Governance issues, political incentives and weak budget institutions all contribute to inefficiency.
Public expenditure in the region grew on average 7 percentage points in the last 20 years but there was no corresponding increase in the quality of people’s lives.

Efficient Spending by Numbers

The (In)Efficiency of Public Spending

(Chapter 3)

Public expenditure in Latin America and the Caribbean grew on average 7 percentage points during the past 20 years—an increase that, unfortunately, is not reflected in a similar increase in quality physical and human capital, or lasting social outcomes. This is particularly the case in countries where public expenditure increased the most, which today are struggling with fiscal sustainability and low growth. Big and small countries alike have experienced huge problems achieving efficiency.

Given that public budgets in all Latin American and Caribbean countries are likely to remain tight for some time to come, all levels of government will have to learn to spend more wisely. Growing citizen concerns, aging populations, tax burdens that have reached efficiency limits, plus international economic volatility have put pressure on governments to increase the value for money of public services. Read more.

Meet the Authors

Alejandro Izquierdo

A citizen of Argentina, holds a PhD in Economics from the University of Maryland. He is chief economist and general manager a.i. of the Research Department of the Inter-American Development Bank.

Carola Pessino

Citizen of Argentina, holds a PhD in Economics from the University of Chicago. She is principal specialist in the Fiscal and Municipal Management Division of the Inter-American Development Bank.