Abstract:
The study assessed the effect of public spending efficiency on human capital,
public debt, and income inequality in Africa. Specifically, the study computed
technical efficiency scores for public spending on education and health and
examined its effect on public debt and income inequality. Data Envelopment
Analysis and DEA Bootstrapping models were used to investigate the relative
technical efficiencies and their correlates in Africa. System GMM was used to
examine the relationship between public spending, public debt, and income
inequality while Lind and Mehlum U-shaped test approach was used to
determine the turning points. The data was sourced from the World Bank’s
World Development Indicators, World Governance Indicators, and
Standardized World Income Inequality database from 2006 to 2017 for African
countries. The study found public spending on health and education to be
inefficient. The countries (DMUs) were found to be more efficient in health
spending than in education spending. Factors such as government expenditure,
economic growth, urbanization, trade openness, and institutional quality were
found to influence efficiency of public spending on human capital. Institutional
quality of at least 50% increases efficiency of public spending on education.
Efficiency of public spending on health of at least 70.62% was found to reduce
public debt while efficiency of public spending on education of at least 77.1%
and 77.4% were found to reduce public debt and income inequality respectively.
The study recommends that governments should ensure high levels of efficiency
of public spending on human capital to reduce public debt and income
inequality by ensuring institutional quality, trade openness, and growth in
urbanization.
