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Social expenditure composition, inequality and growth in the OECD: Labour market policies are most effective

Author

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  • Bação, Pedro
  • Duarte, Joshua
  • Simões, Marta

Abstract

The literature on public social expenditure envisages a role for the composition of public social expenditure in the design of policies to reduce inequality and promote economic growth. However, there is a lack of empirical evidence on which to ground social policy decisions. This study contributes to filling this gap by investigating the dynamic interdependencies between nine different categories of social spending, inequality and growth in 36 OECD countries over the period 1995–2017. According to the results of our work, based on a PVAR model, achieving a decrease in inequality without decreasing output growth is possible, requiring a change in the composition of social policy that gives more weight to spending on old age and survivors’ pensions, incapacity and family benefits, and active labour market policies, the latter having also a positive impact on growth. On the contrary, social expenditure on housing, as it has been conducted, appears to harm growth and enhance inequality.

Suggested Citation

  • Bação, Pedro & Duarte, Joshua & Simões, Marta, 2024. "Social expenditure composition, inequality and growth in the OECD: Labour market policies are most effective," Journal of Policy Modeling, Elsevier, vol. 46(1), pages 75-89.
    • Handle: RePEc:eee:jpolmo:v:46:y:2024:i:1:p:75-89
    DOI: 10.1016/j.jpolmod.2024.01.001
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    More about this item

    Keywords

    Social expenditure composition; Inequality; Growth; OECD; PVAR; Equity-efficiency trade-off;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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