The name is absent

Secondly, we use public sector social expenditures (in percentage of GDP) that are obtained
from OECD Social Expenditure database (SOCX) and include aggregated public
expenditures of all government tiers.¹² This measure captures transfers from government
institutions, namely “benefits to, and financial contributions targeted at, households and
individuals in order to provide support during circumstances which adversely affect their
welfare, provided that the provision of the benefits and financial contributions constitutes
neither a direct payment for a particular good or service nor an individual contract or transfer”
(OECD, 2007, p. 7). OECD defines expenditures as ‘social’ if they satisfy two criteria: first,
they have to intend a social purpose, and, second, these programs must be based on either
inter-personal redistribution or compulsory participation (OECD, 2007, p. 8). They take the
form of “cash benefits (e.g. pensions, income support during maternity leave, and social
assistance payments), social services (e.g. childcare, care for the elderly and disabled) and tax
breaks with a social purpose (e.g. tax expenditures towards families with children, or
favorable tax treatment of contributions to private health plans)” (ibidem, p. 7), excluding the
administrative costs of executing them.

Figure 4 presents within country variation in social expenditures as a share of GDP for the
“core” countries with data available. There is a tendency of increased social expenditures
during the period of investigation. The average share of social expenditures for the core
countries in the Figure 4 increased from 0.17 in 1980 to 0.19 in 2003.¹³ The Netherlands is the
only country with reduced social expenditures, while Japan has the largest growth. Notice that
social expenditures as a share of GDP serve as automatic stabilizers and, thus, typically shrink
in a boom and expand in a recession. Thus, it is important to include GDP in the empirical
model in order to avoid identification on variation in national income.

We also employ separate components of public social expenditure that differentiate
government transfers by social policy area such as, e.g., health, old-age, unemployment,
active labor market policies, housing, family, and ‘other’. Table 2 provides an overview of
spending programs that are attributed to each policy area. The major population is, in
principle, entitled to all those spending categories so that each may exert an independent
effect of its own.¹⁴ The correlation coefficient between government consumption spending
(from the WDI) and total social spending (from the OECD) is equal to 0.67 in our sample.

¹² The OECD defines expenditures as ‘public’ (as opposed to being ’private’) when institutions of the ‘General
Government’ control the relevant financial flows. The ‘General Government’ in this context includes different
levels of government and social security funds. This definition of ‘public’ includes, often by tradition, transfers
by compulsory social insurances and social assistance schemes (see also OECD 2007, p.8-10).

¹³ For all 29 OECD countries included in the empirical analyses, social expenditures increase from 17 percent of
GDP in 1980 to 21 percent in 2003.

¹⁴ The category ‘other social expenses’ includes ‘WWII survivor’ and ‘incapacity’ benefits as well as ‘other
social expenses’. ‘Other social spending’ is a kitchen-sink variable, comprising benefits that could not be

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