Poverty, Crisis and Government Expenditure: An Empirical Analysis

Abstract

Reducing and eradicating global poverty features as a primary objective of the sustainable development goals (SDGs) for 2030. Since over half a century, the World Bank has disbursed loans amounting to billions of US dollars to assist countries to alleviate poverty. However, the path to zero poverty is often impaired with conflicts, social unrest and, most commonly, economic crisis. In this chapter, we examine the inter-linkage between various forms of economic crises, poverty and government expenditure for a set of 127 countries from 1985 to 2010. Using a simultaneous equation model, we test the direct effect of a financial crisis on the incidence of poverty and its indirect effect through the immediate decrease in government expenditure. Contrary to previous studies, our findings suggest that crises have no direct impact on poverty. We find a similar effect for currency, inflation and debt crisis. However, there is evidence that poverty increases indirectly due to a fall in government expenditure. Our results are robust for non-advanced and advanced economies and alternate estimation technique using factor analysis.

Citation

Giri, J.K. and Thakkar, N. (2024), "Poverty, Crisis and Government Expenditure: An Empirical Analysis", Chatterjee, T. (Ed.) International Trade, Economic Crisis and the Sustainable Development Goals, Emerald Publishing Limited, Leeds, pp. 49-73. https://doi.org/10.1108/978-1-83753-586-620241004