The determinants of social expenditures in OECD countries

Many theories have been proposed to explain why social expenditures have increased in industrialized countries. The determinants include globalization, political–institutional variables such as government ideology and electoral motives, demographic change, and economic variables, such as unemployment. Scholars have modeled social expenditures as the dependent variable in many empirical studies. We employ extreme bounds analysis and Bayesian model averaging to examine robust predictors of social expenditures. Our sample contains 31 OECD countries over the period between 1980 and 2016. The results suggest that trade globalization, the fractionalization of the party system, and fiscal balances are negatively associated with social expenditures. Unemployment, population aging, banking crises, social globalization, and public debt enter positively. Moreover, social expenditures have increased under left-wing governments when de facto trade globalization was prominent, and at the time of banking crises. We conclude that policymakers in individual countries rely on domestic conditions to craft social policies—globalization, aging, and business cycles notwithstanding.