Expenditure composition and economic development in Benin/Marco Pani and Mohamed El Harrak—Washington, D.C. : International Monetary Fund, 2010.
p. ; cm.
Includes bibliographical references.
1. Benin—Appropriation and expenditures. 2. Wages—Benin. 3. Civil service—Salaries, etc.— Benin. 4. Public investments—Benin. I. El Harrak, Mohamed. II. International Monetary Fund.
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This paper estimates how changes in the composition of public expenditure affect growth, employment, and income inequality in Benin. These estimates are based on a model of labor market segmentation with partial labor mobility along the lines of Harris and Todaro (1970). The model is calibrated to fit the data for the Beninese economy over the period 2003—07. Despite some data limitations, the results obtained suggest that a shift in the composition of expenditure from wages to public investment would have beneficial effects on growth, employment, and income equality, particularly through its effects on wages and labor demand in the private formal sector; conversely, an increase in civil servants’ wages, even if it were financed by grants, could result in lower growth, higher unemployment, and larger wage disparities across sectors.