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

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  • Davide Furceri
  • Aleksandra Zdzienicka

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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  • Davide Furceri & Aleksandra Zdzienicka, 2012. "The Effects of Social Spending on Economic Activity: Empirical Evidence from a Panel of OECD Countries," Fiscal Studies, Institute for Fiscal Studies, vol. 33(1), pages 129-152, March.
    • Handle: RePEc:ifs:fistud:v:33:y:2012:i:1:p:129-152
    DOI: j.1475-5890.2012.00155.x
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    More about this item

    JEL classification:

    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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