Social Spending and Automatic Stabilizers in the OECD [chapter]

Julia Darby, Jacques Melitz
Economic Policy  
The macroeconomic literature on automatic stabilisation tends to focus on taxes and dismiss the relevance of government expenditure except for unemployment compensation. Our results go sharply contrary to this view. We engage in an empirical analysis of 20 OECD countries from 1980-2001 and find that age-and health-related social expenditure as well as incapacity benefits all react to the cycle in a stabilising manner. While possibly new in the macro literature, this conforms to many results in
more » ... tudies in labour economics. In the individual country studies, the cyclical sensitivity of the other items of social spending emerges less clearly than that of unemployment compensations. Thus, as a distinct possibility in the study, the mechanisms underlying automatic stabilisation may vary by country. Preliminary version of a paper prepared for the 47 th Panel Meeting of Economic Policy in Ljubljana on 18-19 April, 2008. We are grateful to three anonymous referees for helpful comments. Simon Wren Lewis, participants at the meetings of the European Monetary Forum in Cardiff in 2007 and the 2006 MMF Conference in York and seminar participants at Leeds, Loughborough and Strathclyde also provided useful feedback and suggestions on an earlier version of this work. In addition we would like to thank Max Laidaique of the OECD for his help in clarifying a number of issues regarding the Social Expenditure database.
doi:10.1002/9781444307238.ch3 fatcat:wwq6pewwf5a6fc6nkybt3x2iby