Crowding-out effect between income policies and public services budgets in OECD countries

Abstract

Challenges such as globalization and the digital economy are affecting the labor market and causing social exclusion. Thus, the relevance of income policies, which are responsible for the citizens’ financial security, is understood. This study aimed to evaluate the budget expansion of income policies between 1970 and 2019 and verify if there is a crowding-out effect between their budget and public services from 2000 to 2019 in OECD countries. The theoretical framework addressed the welfare state, income policies, budget disputes and austerity, and the crowding-out and crowding-in (complementarity) effects. Methodologically, descriptive and graphical analyses, correlation analyses, Granger causality tests, and GMM system short panel regression were used. The results indicated an expansion of income policy budgets, emphasizing investments in social security and pension systems. Also, a mixed relationship was observed between the acceptance of the crowding-out hypothesis and income policies and public services, with a tendency to exclude public services for expansion in income policies. Limitations were observed due to the lack of some data from the broad database used.