The impact of financial crises on social spending: Delving into the effects in developed and developing countries

Abstract

Despite expecting countries to rely on welfare measures in the aftermath of financial crises, one should not ignore the possibility of fiscal retrenchments due to the constraints that those crises may bring. This article analyses that issue by assessing the impact of financial crises on governmental social spending and its components (healthcare, education and social protection) using a panel of 108 countries from 1991 to 2019. An important contribution of this study is that it assesses the effects of different types of financial crises (banking, currency and debt) in addition to distinguishing between developed and developing countries. The findings indicate that while developed countries neutralise the adverse effects of crises by increasing social spending, developing countries tend to shrink outlays—in particular healthcare and social protection—when financial crises strike, despite the associated negative consequences on human and social well‐being. Moreover, debt crises proved to be more detrimental to social spending than banking and currency crises in developing countries. An important policy implication arising from our analysis is that governments should maintain a high level of fiscal balance in normal times to be able to finance welfare state expansion programmes during periods of financial crises, especially in emerging/developing countries.

The effects of digital economy development on social insurance funds revenue: Evidence from China

“…Several countries, including China, are facing a crisis in the balance of social insurance funds [ 37 , 43 ]. The widespread use of digital technologies has significantly influenced economic and social development [ 44 , 45 ].…”

“…We measure the fiscal expenditure by dividing the fiscal general public budget expenditure by regional GDP. Fiscal expenditure can increase the availability of public goods and attract new workers [35][36][37]. Fiscal expenditures related to social security and employment contribute to employment growth and wage increases, which affect the social insurance funds revenue.…”