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The dynamics of social expenditures over the cycle: A comparison across OECD countries

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  • Anna Cristina D’Addio

Abstract

This paper studies the cyclical behaviour of public social spending in 20 OECD countries observed over the period between 1982 and 2011. In view of the recent discussion on cutting the budget deficit, the paper pays particular attention to whether social spending is pro-cyclical or countercyclical, whether it changes asymmetrically during expansions and recessions and whether the asymmetric changes in social spending contribute to a drift in social expenditures over time. The links between social spending levels and key economic variables, such as economic growth, provide also a useful context for discussing current social expenditure trends. The estimates, based on a system-GMM estimator, suggest that an upward ratchet effect exists. The effect is robust to a large number of alternative specifications. JEL classification: E32, E62, H50, I00 Keywords: Fiscal policy, economic cycles, social spending, ratchet effect

Suggested Citation

  • Anna Cristina D’Addio, 2015. "The dynamics of social expenditures over the cycle: A comparison across OECD countries," OECD Journal: Economic Studies, OECD Publishing, vol. 2015(1), pages 149-178.
    • Handle: RePEc:oec:ecokac:5jrs63lpkmxr
    DOI: 10.1787/eco_studies-2015-5jrs63lpkmxr
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    More about this item

    Keywords

    fiscal policy; economic cycles; social spending; ratchet effect;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • I00 - Health, Education, and Welfare - - General - - - General

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