SOCIAL EXPENDITURE MULTIPLIER: ASSESSMENT OF ECONOMIC EFFECT AND OPTIMAL VALUES
SOCIAL EXPENDITURE MULTIPLIER: ASSESSMENT OF ECONOMIC EFFECT AND OPTIMAL VALUES

Summary/Abstract: The main aim of the study is to test thehypothesis that social expenditures are not only a sourceof social support and budgeting of the social sphere, butcan be a significant lever of economic development,provided proper planning of their share and volume. Inthis regard, the authors have adapted the open-economymultiplier to assess the economic effect of socialexpenditures. Based on the correlation analysis of therelationship between the share of social expenditures (%of GDP) and the multiplier of social expenditures,conducted on the example of EU countries, two groupsof countries are identified depending on the impact ofsocial expenditure multiplier on GDP: the first oneembraces those countries that are characterized by agrowing economic return from social expenditures; thesecond one is where the return is declining. To determinethe optimal levels of social expenditures, which can beexpected to have a positive economic effect in the formof GDP growth, we have identified critical limits of themultiplier of social expenditures according to theprinciple: the maximum value is seen in the group ofcountries with positive impact; the minimal one isexperienced in countries with inverse dependence of theshare of social expenditures and their multiplier. As aresult, the experience of financing social expenditures inthe EU leads to the conclusion that the optimal share ofsocial expenditures in GDP ranges from 28% to 30% –within these limits multiplier values exceed 1.0, i.e. thereis a positive impact of social expenditures on GDP in theform of the growth of economic results over theresources consumed.

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