Net public social expenditure [analysis of OECD data]

The OECD Social Expenditure data base (SOCX) allows the monitoring of trends in aggregate social expenditure and changes in its composition. But aggregate social expenditure may sometimes fail to reflect the true ‘effort’ of a country in providing social support. Account needs to be taken of the effects of tax systems and transfers which, although mandatory, are not paid by government. In order to get from a “gross” to a “net” concept of social expenditure various adjustments to raw data are needed. These adjustments concern: methods of benefit payment (“net” or “gross” of tax); the varying extent with which governments use fiscal instruments rather than cash transfers to pursue social policy goals; and the different degree to which government requires other economic agents to provide social expenditures. The analysis also addresses the automatic budget effects related to the stage of the economic cycle. This analysis is a first attempt to capture in a comprehensive manner the effect of different institutional arrangements such as tax-systems on cross-country comparisons concerning social expenditure. It builds on pioneering work undertaken by the Danish, Dutch and Swedish authorities. This initial analysis focuses mainly on cash transfers and covers six countries: Denmark, Germany, the Netherlands, Sweden, the United Kingdom and the United States. The results show that apparently large differences in the level of social expenditures in different countries reflect in part different tax and institutional arrangements. However, further international research is needed to overcome the unavoidable methodological limitations which are inherent in our approach.