What Goes Up Must Come Down : Cyclicality in Public Wage Bill Spending
This paper analyzes the cyclicality of public sector wage bill spending in Europe and Central Asia and assesses the impact of wage bill spending on fiscal discipline before, during, and after the global financial crisis of 2008/09. While there are...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2014/01/18859631/goes-up-must-come-down-cyclicality-public-wage-bill-spending http://hdl.handle.net/10986/16817 |
| Summary: | This paper analyzes the cyclicality of
public sector wage bill spending in Europe and Central Asia
and assesses the impact of wage bill spending on fiscal
discipline before, during, and after the global financial
crisis of 2008/09. While there are important differences
across countries, the results show that public sector wage
bill spending tends to behave strongly pro-cyclically,
especially in transition economies. Moreover, while wage
bill spending is pro-cyclical during both good and bad
times, adjustments during economic downturns tend to be
sharper than expansions during periods of economic booms. In
addition, there is evidence of political cycles, with
stronger wage bill growth in pre-election periods. Finally,
the analysis reveals that while the size of the wage bill
does not seem to systematically affect fiscal discipline
across countries, expansions within countries over time are
associated with deteriorating fiscal positions. These
findings provide a strong impetus for public wage and
employment policies that aim to restrain excessive growth of
the wage bill during boom periods. This prospective
management of the wage bill would not only reduce the need
for painful adjustments during periods of fiscal
consolidation, but also contribute to strengthening the
overall countercyclical and stabilizing impact of fiscal policies. |
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