An Empirical Analysis of Fiscal Policy, Governance, and Educational Outcomes in Low- and Middle-income Countries

Good governance signifies efficient and effective public management of resources, transparency, and accountability in strategies implemented and is positively associated with higher economic development. Over the past two decades, low-income and middle-income countries have increased government spending on education to attain higher productivity and economic growth. However, poor governance can lower the effectiveness of expansionary fiscal policy. This study is a panel data analysis of the impact of 131 low and middle-income countries’ expansionary fiscal policy on educational outcomes from 1999 to 2019. After controlling critical governance factors such as perceived levels of corruption, rule of law, and voice and accountability, we find that higher levels of governance improve education outcomes in low and middle-income countries. This study also uses data from the Public Expenditure and Financial Accountability (PEFA) framework to evaluate whether mechanisms necessitating reporting enhance better institutional quality and governance estimates. The results show that strengthening financial reporting pressures governments to build better institutions that boost control of corruption measures.