Fiscal Capacity, Democratic Institutions and Social Welfare Outcomes in Developing Countries

The purpose of this paper is to gauge the various determinants of social spending captured by social protection and education spending in cross section of developing countries, a subject on which there is scant evidence. We hypothesize that fiscal capacity is necessary but sufficient for resource allocation in this area, because the political will do so must also be present. Using a panel data instrumental variable, we find that greater fiscal capacity robustly raises social spending in developing countries in the period 1990 to 2010. It is also strongly that rising democratisation enhances social sector spending; the of greater democracy and higher fiscal capacity could reinforce effect. Our work also innovatively incorporates inequality into the, finding that social expenditure is greater in more egalitarian. Military expenditure also appears to crowd out social protection, but not robustly