Social spending and automatic stabilizers in the OECD

Julia Darby, Jacques Melitz

    Research output: Contribution to journalArticle

    64 Citations (Scopus)

    Abstract

    Automatic stabilizers: 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. © 2008 Centre for Economic Policy Research, Center for Economic Studies, Maison des Sciences de l'Homme.

    Original languageEnglish
    Pages (from-to)715-756
    Number of pages42
    JournalEconomic Policy
    Volume23
    Issue number56
    DOIs
    Publication statusPublished - 2008

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