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On the Impact of Social Spending on Long-term Economic Performance in the USA
Lu, Jiayong
Lu, Jiayong
Abstract
This paper analyzes the dynamics of social spending and long-term economic performance in the United States from 1949-2019 using vector autoregression models. It breaks down social spending into six disaggregate programs to identify if different social programs have similar effects on the economy. Overall, the study finds that social spending increases private savings and the unemployment rate. Due to its dominant distortionary effects on the labor market, social spending decreases GDP. These effects are mostly short-term effects. The economic effects of the different social spending programs on the economy are similar in direction but different in magnitude. The effects of social security and medical care on GDP are not significant. In turn, the adverse effects of veteran benefits and unemployment insurance on GDP are dominated by the short-term impact, while the effects of public assistance are more evenly distributed, and the adverse effects of other social assistance are exclusively long-term.
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2022-05-01
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Economics