Munich Personal RePEc Archive

The Effects of Social Spending on Economic Activity: Empirical Evidence from a Panel of OECD Countries

Davide, Furceri and Aleksandra, Zdzienicka (2011): The Effects of Social Spending on Economic Activity: Empirical Evidence from a Panel of OECD Countries.

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Abstract

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% of social spending increases GDP by about 0.1 percentage point, which, given the share of social spending to GDP, corresponds to a multiplier of about 0.6. The effect is similar to the one of total government spending, and it is larger in periods of severe downturns. Among spending subcategories, social spending in Health and 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.

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