The Impact of Fiscal Consolidation on Human Development

We find that fiscal austerity is associated with a reduction of human development standards, with the negative effect being particularly severe in the case of spending‐driven consolidation episodes. Fiscal adjustments are especially damaging for human development in developing countries (namely, African and Latin American countries). Additionally, the empirical evidence shows that (i) government stability is a crucial institutional determinant of human development, and (ii) while investment in physical capital can boost human development, government consumption and inflation are detrimental to it.