ON THE LONG-TERM MACROECONOMIC EFFECTS OF SOCIAL SPENDING IN THE UNITED STATES

Alfredo Pereira and Jorge Andraz

No 151, Working Papers from Department of Economics, College of William and Mary

Abstract: We estimate the long-term impact of changes in social security and social protection spending on economic performance in the USA. We estimate a VAR model relating GDP, unemployment rates, saving rates, and social spending. Our results suggest that social spending has significant distortionary effects in the labor markets as measured by its long term effects on the unemployment rate, which translate into a detrimental effect on long-term output, this despite a positive, albeit small, effect on the gross savings rate. There are important policy implications of these results. If one considers the systems as they are, any further expansion in their generosity would have detrimental long-term effects. These detrimental effects, however, are neither an indictment of social spending or evidence against extension of benefits. What they highlight is the need to carefully consider the financing mechanisms currently used and the need to align benefits and contributions in the pension component of social security and the need to find a taxrevenue mix that is less distortionary for the unfunded benefits.

Keywords: Social spending; unemployment; saving; output (search for similar items in EconPapers)
JEL-codes: C32 H55 (search for similar items in EconPapers)
Pages: 9 pages
Date: 2014-04-12
New Economics Papers: this item is included in nep-age and nep-fdg
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Related works:
Journal Article: On the long-term macroeconomic effects of social spending in the United States (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:cwm:wpaper:151

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