Literature scan on the economic effects of social protection expenditure

11 August 2020

By Julian Williams

NZIER report to a coalition of non-government organisations with an interest in poverty.

NZIER prepared a literature scan to provide theoretical and evidential insights to a coalition of non-government organisations (with an interest in poverty) into the microeconomic and long term macroeconomic growth effects of increases in social protection expenditure.

The Coalition is interested in the economic effects of increases in welfare benefits recommended by the Welfare Expert Advisory Group. These welfare benefits are types of social protection expenditure.

While social protection has a social policy purpose, it also has associated economic growth impacts. These are of interest to policymakers and social policy organisations.

The literature scanned reported social protection expenditure has the following economic effects:

  • Short term fiscal stimulus
  • Long term increases in microeconomic (household) productivity
  • Long term changes (increases and decreases) in macroeconomic growth.

Evidence is generally good for positive fiscal and household effects but mixed for effects on long term macroeconomic growth. Many authors expect that micro level effects do influence the macro economy, but evidence of the nexus is elusive.