The Relationship Between Public Social Security Expenditures and Poverty, Income Inequality, and GDP Growth: An Empirical Case Study of Bangladesh

During recent years, public social security programs for the poor and vulnerable groups in Bangladesh have grown both in number and size. The primary goal of these programs is to lift people out of poverty and to contribute to national economic development. The objective of this article is to quantify the relationship between public social security expenditures and poverty, income inequality, and GDP growth in Bangladesh. The study uses multivariate time series data from 1991 to 2019 and applies the Johansen cointegration test and the Vector Error Correction (VEC) modeling methodology. There are three dependent variables - poverty rate, Gini coefficient, and GDP growth rate, while public social security expenses, GDP per capita, active working-age population aged 15-64, elderly population aged above 65, gross capital formation, share of population aged 25-64 with tertiary (post-secondary) education, inflation, and export earnings as a share of GDP are used as the explanatory variables. The estimated results suggest that public social security expenditures have significant effects on gross capital formation, but not on either poverty or income inequality in the short run in Bangladesh. In addition, capital formation, public social security expenditures, elderly population, and export earnings are found to have significant positive effects on GDP growth in the long run. Higher levels of GDP should generate more resources for the government coffers, enabling the government to expand the social security programs by targeting higher numbers of beneficiaries and offering higher amounts of benefits, which in turn can contribute to further GDP growth. This study also finds that public social security expenditures have no significant effect on income inequality in Bangladesh in either short run or long run. However, the general hypothesis is that social security transfers to lower-income groups may help with reducing income inequality. In many developing countries, governments allocate and distribute inadequate amounts of money to targeted communities, which results in only marginal changes in inequality. The lesson for the policymakers in Bangladesh is to overhaul the existing social security programs that evidently have had marginal effects on reducing income inequality, and may even have worsened poverty in the long run.