Publication

This paper finds that expansion of the public sector can not only weaken economic growth in low-income countries, but also provision of public services may be difficult to retrench. These issues are relevant to Mozambique as the share of government in GDP already is comparatively high and strategic management of aggregate public spending historically weak. With a new long-term macroeconomic model the author quantifies the implications of alternative aggregate spending profiles. He shows that small increases in minimum levels of government spending correspond to large increases in the duration to aid independence. Sharp reductions in aid availability would necessitate significant fiscal and economic adjustments, including cuts in real public spending per capita.