Causality Between Social Spending and Poverty: Evidence from Oecd Countries

Irem Cetin

Abstract

Although social spending constitutes a significant part of the GDP in OECD countries, the problem of fighting poverty has not been completely eliminated. In this study, it was aimed to investigate the causality between social spending and poverty by using the data of 13 OECD countries between 2004-2017. In the study, the panel vector error correction model (panel VECM) proposed by Engle and Granger (1987) was employed to investigate the causality between social spending and poverty in OECD countries. According to the results obtained from the study, while no causality was found from social spending to poverty in the long run in the case of OECD countries, it was concluded that poverty was the granger cause of social spending. Furthermore, no short-run causality was found between the variables. The results obtained from the study revealed the importance of considering the effectiveness of social spending and the social spending items selected rather than the level of social spending in the fight against poverty.


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