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Financial Crises and Social Spending

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  • Maureen Lewis
  • Marijn Verhoeven

Abstract

Financial crises in developing and transition countries have often proven disruptive to policies and programmes due to procyclical trends in government spending growth. Given the importance and significant proportion of public budgets devoted to education and health, cuts in government expenditures during recessions potentially place social programmes at risk. This paper analyses the experiences from 1995–2007 for 131 countries, projects fiscal social spending to 2013, and examines specific issues around fiscal social spending in the current crisis, including donor responses and government and household coping mechanisms. Growth rate trends in education and health spending fluctuate over time, with greater volatility in education. Despite the variation on growth rate trends, absolute levels of fiscal spending rise steadily over time, with brief flat trends over one or two years, reflecting periods of GDP growth decline. Public spending tends to be more counter-cyclical for education compared to health. While sharp declines in growth rates of fiscal social spending are projected, they are balanced by projected increases in absolute spending over the 2008–2013 period.

Suggested Citation

  • Maureen Lewis & Marijn Verhoeven, 2010. "Financial Crises and Social Spending," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 11(4), pages 79-110, October.
    • Handle: RePEc:wej:wldecn:445
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    Cited by:

    1. Sara Guerschanik Calvo, 2010. "The Global Financial Crisis of 2008-10: A View from the Social Sectors," Human Development Research Papers (2009 to present) HDRP-2010-18, Human Development Report Office (HDRO), United Nations Development Programme (UNDP).
    2. Rémi Bazillier & Jérôme Hericourt, 2017. "The Circular Relationship Between Inequality, Leverage, And Financial Crises," Journal of Economic Surveys, Wiley Blackwell, vol. 31(2), pages 463-496, April.
    3. Rémi Bazillier & Jérôme Hericourt, 2017. "The Circular Relationship Between Inequality, Leverage, And Financial Crises," Journal of Economic Surveys, Wiley Blackwell, vol. 31(2), pages 463-496, April.
    4. Dorn, Florian & Lange, Berit & Braml, Martin & Gstrein, David & Nyirenda, John L.Z. & Vanella, Patrizio & Winter, Joachim & Fuest, Clemens & Krause, Gérard, 2023. "The challenge of estimating the direct and indirect effects of COVID-19 interventions – Toward an integrated economic and epidemiological approach," Economics & Human Biology, Elsevier, vol. 49(C).
    5. Xiaohui Hou & Edit V. Velényi & Abdo S. Yazbeck & Roberto F. Iunes & Owen Smith, 2013. "Learning from Economic Downturns : How to Better Assess, Track, and Mitigate the Impact on the Health Sector," World Bank Publications - Books, The World Bank Group, number 16054.
    6. Otker-Robe, Inci & Podpiera, Anca Maria, 2013. "The social impact of financial crises: evidence from the global financial crisis," Policy Research Working Paper Series 6703, The World Bank.
    7. Mathonnat, Clément & Williams, Benjamin, 2020. "Does more finance mean more inequality in times of crisis?," Economic Systems, Elsevier, vol. 44(4).
    8. Daoud, Adel & Johansson, Fredrik, 2019. "Estimating Treatment Heterogeneity of International Monetary Fund Programs on Child Poverty with Generalized Random Forest," SocArXiv awfjt, Center for Open Science.
    9. Harrison, Ann & Sepulveda, Claudia, 2011. "Learning from developing country experience : growth and economic thought before and after the 2008-09 crisis," Policy Research Working Paper Series 5752, The World Bank.
    10. Conor Keegan & Steve Thomas & Charles Normand & Conceição Portela, 2013. "Measuring recession severity and its impact on healthcare expenditure," International Journal of Health Economics and Management, Springer, vol. 13(2), pages 139-155, June.
    11. Edit V. Velenyi & Marc F. Smitz, 2014. "Cyclical Patterns in Government Health Expenditures Between 1995 and 2010," Health, Nutrition and Population (HNP) Discussion Paper Series 87885, The World Bank.
    12. Liang, Li-Lin & Tussing, A. Dale, 2019. "The cyclicality of government health expenditure and its effects on population health," Health Policy, Elsevier, vol. 123(1), pages 96-103.
    13. Grigoli, Francesco & Mills, Zachary & Verhoeven, Marijn & Vlaicu, Razvan, 2012. "MTEFs and fiscal performance: panel data evidence," Policy Research Working Paper Series 6186, The World Bank.

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