Determinants of the Time-Pattern of Government spending in the developing countries: The case of Iraq

This study aims to examine the economic and sociopoliticalfactors determining the growth-pattern of publicspending in Iraq. During 1921-50 the capacity of the Government to spendwas constrained largely by its ability to collect taxation,particularly indirect taxes. The Government was unable toincrease its revenue from oil since its bargaining positionagainst the foreign oil companies was weak due to the termsof concessions. Evidence for 1950 to 1980 strongly supports Wagner'sLaw suggesting that public spending increases along with thelevel of development. Also, it shows that satisfaction ofpublic needs has depended largely on the availability offinancial resources, mainly oil receipts. As the revenueconstraint relaxed in the early 1970's, government spendingexpanded substantially in relation to national income. Therefore,the rapid shift in government spending and its majorcategories was solely due to the "social upheaval" broughtabout by oil nationalization. Experience of economic planning since 1951 reveals thatthe main defect of economic policy was reliance upon crude oilexport, which is determined by exogenous factors in anuncertain world market. Only in the late 1970's was fiscalpolicy able to contribute to the integration of the oil sectorin the national economy and to curtail the dependence on oilreceipts.