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The Effects of Social Spending on Economic Activity: Empirical Evidence from a Panel of OECD Countries *
Author(s) -
Furceri Davide,
Zdzienicka Aleksandra
Publication year - 2012
Publication title -
fiscal studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.63
H-Index - 40
eISSN - 1475-5890
pISSN - 0143-5671
DOI - 10.1111/j.1475-5890.2012.00155.x
Subject(s) - economics , government spending , unemployment , investment (military) , panel data , health spending , consumption (sociology) , consumer spending , multiplier (economics) , demographic economics , private consumption , monetary economics , macroeconomics , recession , econometrics , fiscal policy , health care , economic growth , welfare , social science , health insurance , sociology , politics , political science , law , market economy
The aim of this paper is to assess the short‐term effects of social spending on economic activity. Using a panel of OECD countries from 1980 to 2005, the results show that social spending has expansionary effects on GDP. In particular, we find that an increase of 1 per cent in social spending increases GDP by about 0.1 percentage points, which, given the share of social spending in GDP, corresponds to a multiplier of about 0.6. The effect is similar to that of total government spending, and it is larger in periods of severe downturns. Among spending subcategories, social spending on health and on unemployment benefits have the greatest effects. Social spending also positively affects private consumption, while it has negligible effects on investment. The empirical results are economically and statistically significant, and robust.