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Public expenditures and the risk of social dominance

Author

Listed:
  • Ludger Schuknecht

    (Organisation for Economic Co-operation and Development (OECD))

  • Holger Zemanek

    (Federal Ministry of Finance)

Abstract

Based on the observation of an unabated trend towards higher social spending-to-GDP ratios in advanced countries, the study analyzes the risk of social dominance, a situation in which social expenditures dominate fiscal policy and undermine economic growth and fiscal sustainability. We examine that risk by analyzing drivers of social expenditures and their interactions with other fiscal variables. The results show that social expenditure growth largely is population ageing driven and crowds out other primary expenditures; we also find evidence of fiscal unsustainability. The findings, along with the accelerating ageing of populations and exceptionally high political costs of reforming social expenditures suggest significant and rising risks of social dominance.

Suggested Citation

  • Ludger Schuknecht & Holger Zemanek, 2021. "Public expenditures and the risk of social dominance," Public Choice, Springer, vol. 188(1), pages 95-120, July.
    • Handle: RePEc:kap:pubcho:v:188:y:2021:i:1:d:10.1007_s11127-020-00814-5
    DOI: 10.1007/s11127-020-00814-5
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    More about this item

    Keywords

    Fiscal policy; Social expenditures; Political economy; Crowding out; Fiscal sustainability;
    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
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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