The Cyclical Behaviour of Government Spending for Social Protection: Is the OECD Methodology Robust?

By: Arsenev, Aleksandr.

Contributor(s): Heimberger, Philipp | Schütz, Bernhard.

Material type: materialTypeLabel

BookSeries: wiiw Working Papers: 238Publisher: Wien : Wiener Institut für Internationale Wirtschaftsvergleiche (wiiw), 2023Description: 59 S., 33 Tables and 8 Figures, 30cm.Subject(s): Government debt | fiscal deficit | fiscal rules | budget elasticity | government spending | social spendingCountries covered: Austria | Czechia | Denmark | France | Germany | Greece | Italy | Poland | Romania | Spain | Swedenwiiw Research Areas: Macroeconomic Analysis and PolicyClassification: E62 | H62 | E32 Online resources: Click here to access online Summary: Spending elasticities measure the reaction of different government spending components to the business cycle. They are important inputs for fiscal forecasts, and they are particularly relevant in the context of European Union (EU) fiscal rules, as elasticity estimates enter the estimation of fiscal space. This paper analyses the sensitivity of the estimation method used by the Organisation for Economic Co-operation and Development (OECD) and the European Commission to obtain government spending elasticities by focusing on 11 EU countries in the 1995-2020 period. Our results suggest that spending elasticities are sensitive to small variations in data and model specification. For most EU countries, we reject the assumption that only unemployment spending responds to cyclical variations. While unemployment spending is indeed a major driver of counter-cyclical social spending, other categories of social spending also show signs of responding to the business cycle.

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Item type	Current library	Call number	Status	Date due	Barcode
Paper	WIIW Library	5.700/238 (Browse shelf(Opens below))	Available		1000010006719

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Spending elasticities measure the reaction of different government spending components to the business cycle. They are important inputs for fiscal forecasts, and they are particularly relevant in the context of European Union (EU) fiscal rules, as elasticity estimates enter the estimation of fiscal space. This paper analyses the sensitivity of the estimation method used by the Organisation for Economic Co-operation and Development (OECD) and the European Commission to obtain government spending elasticities by focusing on 11 EU countries in the 1995-2020 period. Our results suggest that spending elasticities are sensitive to small variations in data and model specification. For most EU countries, we reject the assumption that only unemployment spending responds to cyclical variations. While unemployment spending is indeed a major driver of counter-cyclical social spending, other categories of social spending also show signs of responding to the business cycle.

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