The cyclicality of education, health, and social security government spending

Abstract

We use a panel of developed and emerging countries for the period 1970 to 2008 to assess the cyclicality of education, health and social security government spending. We mostly find acyclical behaviour, but evidence also points to counter-cyclicality for social security spending, particularly in OECD countries, consistent with the operation of automatic stabilizers.

Keywords:

• business cycle
• cyclicality
• functional spending
• panel analysis

JEL Classification:

• C23
• E62
• H50

Notes

¹ These three functional spending categories accounted for 41.6%, 54.7% and 34.5% of government spending, respectively, in the full, OECD and developing country groups over the full time span considered in our sample.

² The Hansen J-statistics confirm the validity of the instrument set used. Within-fixed effects results are available from the authors upon request.

³ The output gap is computed as the difference between actual and potential, and potential GDP is obtainded by means of Hodrick–Prescott (HP) filter extraction. As a robustness check, filtering instead with either the Baxter–King or Christiano–Fitzgerald alternatives did not qualitatively alter our main results.