Fiscal Priorities in SAARC and ASEAN Countries

In the landscape of governmental budgets, the core constituents of public expenditures emerge from the imperatives of both safeguarding through defense measures and propelling progress through developmental initiatives within a nation. There is always a trade-off between the defense and developmental components of the national budget. The well-established ‘guns versus butter’ question has become more complex in this era of terrorism and geopolitical tensions, especially in lower and middle-income countries. Hence, empirical research on the determinants of public expenditure on health, education, and the military and their impacts on economic growth is much warranted. This study aims to contribute to the literature by modeling these budgetary components as shared equations in a system of equations framework. A random effects SUR model is estimated by employing unbalanced panel data from 2000 to 2019. Regression results indicate that, over time, national governments allocate less of their budget to the education sector in comparison to health and defense. Increase in per capita income has a positive and significant knock on the budget share of education and health expenditure. Rise in the share of elderly population and young population increases the budget share of health and education outlay, respectively. Regression results also affirm that a less politically stable country distributes more funding for the military in the budgetary process. Marginal effects of significant regressors are consistent across regional blocks.