Social spending and automatic stabilizers in the OECD

J. Darby, J. Melitz

Research output: Contribution to journalArticle

65 Citations (Scopus)
144 Downloads (Pure)

Abstract

The macroeconomic literature on automatic stabilization 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 21 OECD countries from 1982 to 2003 and find that age and health-related social expenditure as well as incapacity and sick benefits all react to the cycle in a stabilizing manner. While possibly new in the macro literature, this conforms to many results in studies in labour economics. The policy implications are broad since much previous analysis of discretionary fiscal policy rests on official figures for automatic stabilization. There are also major implications for efforts to incorporate automatic fiscal policy in simulation models.
Original languageEnglish
Pages (from-to)715-756
Number of pages42
JournalOxford Review of Economic Policy
Volume23
Issue number56
DOIs
Publication statusPublished - Oct 2008

Keywords

  • social spending
  • economic stabilisers
  • oecd
  • economic development

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