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