The effectiveness of government spending on education and health care in developing and transition economies Sanjeev Gupta * , Marijn Verhoeven, Erwin R. Tiongson Fiscal Affairs Department, International Monetary Fund, 700 19th Street, N.W. Washington, DC 20431, USA Received 15 March 2000; received in revised form 7 November 2001; accepted 3 January 2002 Abstract Recent studies show that corruption is associated with higher military spending [Eur. J. Polit. Econ. 17 (2001) 794] and lower government spending on education and health care [J. Publ. Econ. 69 (1998) 263]. This suggests that policies aimed at reducing corruption may lead to changes in the composition of government outlays toward more productive spending. However, little empirical evidence has been presented to support the claim that public spending improves education and health indicators in developing and transition countries. This paper uses cross-sectional data for 50 such countries to show that increased public expenditure on education and health care is associated with improvements in both access to and attainment in schools, and reduces mortality rates for infants and children. The education regressions are robust to different specifications, but the relationship between health care spending and mortality rates is weaker. D 2002 Elsevier Science B.V. All rights reserved. JEL classification: I12; I18; I21; I31 Keywords: Public expenditure; Primary and secondary education; Primary health care; Intrasectoral spending composition; Social indicators 0176-2680/02/$ - see front matter D 2002 Elsevier Science B.V. All rights reserved. PII:S0176-2680(02)00116-7 * Corresponding author. Tel.: +1-202-623-8872; fax: +1-202-623-4022. E-mail address: sgupta@imf.org (S. Gupta). www.elsevier.com/locate/econbase European Journal of Political Economy Vol. 18 (2002) 717–737