WP 18: The multiplier effects of government expenditures on social protection: A multi-country study

This arti­cle assem­bles a novel data­set cove­ring 42 coun­tri­es from 1985 to 2020 to explo­re the impact of public spen­ding on soci­al pro­tec­ti­on on gross domes­tic pro­duct (GDP). Our con­tri­bu­ti­on to the empi­ri­cal lite­ra­tu­re on soci­al pro­tec­ti­on spen­ding lies in con­duc­ting the lar­gest mul­ti-coun­try study using the struc­tu­ral VAR appro­a­ch. Our results high­light posi­ti­ve effects of soci­al pro­tec­ti­on expen­di­tu­res on GDP that sur­pass tho­se of total govern­ment expen­di­tu­res. The­se results vary con­si­de­ra­bly across coun­tri­es, with impact mul­ti­pli­ers ran­ging from 5 in Mexi­co to ‑0.71 in Para­guay. We detect that the cumu­la­ti­ve mul­ti­pli­er exce­eds 1 for 30 out of the 42 sam­ple coun­tri­es and tends to be higher ove­rall, sug­ges­ting that the posi­ti­ve impact of soci­al pro­tec­ti­on spen­ding on GDP accu­mu­la­tes over time. We also find sta­tis­ti­cally sig­ni­fi­cant and strong cor­re­la­ti­ons betwe­en the cumu­la­ti­ve and impact mul­ti­pli­ers and ine­qua­lity mea­su­res such as the Gini coef­fi­ci­ent and the inco­me sha­res of the poo­rest and the richest: the posi­ti­ve impact of public spen­ding on soci­al pro­tec­ti­on on GDP is espe­ci­ally pro­noun­ced in coun­tri­es cha­rac­te­ri­zed by higher ine­qua­lity. Taken together, our results hold sig­ni­fi­cant policy impli­ca­ti­ons, sug­ges­ting that the growth-enhan­cing poten­ti­al of soci­al pro­tec­ti­on poli­ci­es is com­ple­men­tary to their abi­lity to redu­ce inequality.

Key words

Soci­al pro­tec­ti­on poli­ci­es; fis­cal mul­ti­pli­ers; inclu­si­ve eco­no­mic growth; inco­me ine­qua­lity; human deve­lop­ment; struc­tu­ral VAR.