The Mediating Effect of Fiscal Space on the Relationship between Educational Expenditure and Economic Growth

Abstract

Existing literature is inconclusive about the relationship between educational spending and economic growth as it assumes, implicitly, that this relationship is direct. An alternative perspective, that has received less attention in the literature, is that this relationship can be mediated by mediating variables such as fiscal space. The study evaluated whether the fiscal space has a mediating effect on the relationship between economic growth and educational spending. The results have shown that educational spending affects the moderator variable significantly meaning educational expenditure has no direct effect on economic growth but through the moderating factor, fiscal space. This means that there is an indirect effect of educational expenditure on economic growth. In Zimbabwe, educational spending is the major expenditure by the government hence its financing depends on the government’s ability to raise revenue to fund it. An increase in fiscal space has the effect of enhancing economic growth.