Social Protection and Growth

Abstract

Public social expenditure accounts for 25 per cent of GDP, or even more in some countries. That expenditure on this scale has some effect on growth seems very likely, but the direction of the effect is disputed by different schools of thought. Using new data sources and panel data econometric techniques, this paper sheds new light on the issue. Evidence is found in favour of the proposition that more social expenditure reduces growth. However, “active” social spending, including active labour market policies, make work pay policies and spending on family services, appears to have the opposite effect and may be growth-enhancing.