Social spending on family policy and economic growth

Background and Purpose: US social policies designed to support families and children lag other industrialized countries, and one consequence might be children in the United States fare worse than those in other industrialized countries (Kamerman & Khan, 2001). Opponents of expanding social policies in the United States often concern its detrimental effects on macro-economic performance. Empirical evidence, however, has not provided consistent answers on the relationship between social spending and economic performance. Further, few studies have explicitly examined the effect of different components of social spending on economic performance. To fill the gap in literature, this study explored the effect of social spending on economic growth among industrialized countries, focusing on social spending on family policy.

Method: The analysis was based on pooled time-series cross-sectional data of 15 OECD countries. The main independent variables in this study were social spending on family policy as well as other components of social spending (e.g., old age, health, and means-tested public assistance), and the data were drawn from the OECD Social Expenditure Dataset (SOCX). A series of control variables which had been found to affect economic growth were added to the model. Considering common problems arising from pooled time-series cross-sectional data, such as temporal autocorrelation, contemporaneous correlation, and group-wise heterosckedasticity, this study used OLS with panel corrected standard error (Beck, & Katz, 1995). Further, to take into account any unobserved heterogeneity across time and time trend, time dummies and time trend variable were included in the model.

Findings: Overall social spending was negatively associated with economic growth. However, social spending on family policy was found to have a positive effect on economic growth.

Conclusions and Implications: Although overall social spending seems to hamper economic growth to some extent, social spending on family policy was positively associated with economic growth. Family policies are often conceived as an investment in economic growth, by helping mobilize female labor force and allowing women and children to enhance their human capital. The finding from this study provides supportive evidence for the positive role of family policy. The implications for family policies in the United States will be further discussed.