Public Social Expenditures and Economic Growth: Evidence from Selected OECD Countries

Abstract

There is a longstanding debate on whether the government expenditures contribute to economic growth. The endogenous growth theories, in general, predict that effective public expenditures can lead to increases in economic growth trends of countries regardless of their development stages or income levels. Starting from this prediction, this study aims to investigate the effects of governments’ social expenditure proxies namely education, health and social spending on economic growth performances presented by the changes in the gross domestic product (GDP) per capita. Using the feasible generalized least squares (FGLS) estimators based on a balanced panel dataset covering 2002-2013 periods of 18 OECD countries, the study concludes that social expenditures in all three dimensions significantly contribute to the economic growth. Overall results underline that public expenditures can be productive as an investment in the case of selected OECD countries.