Does social protection crowd out social investment?

Abstract

ABSTRACT In this era of austerity, while there are significant fiscal pressures on social protection programs particularly on cash benefits, there is increasing rhetoric concerning the ‘social investment turn.’ Yet, some scholars question whether social investment policies are actually expanding. The evidence is not sufficiently apparent, and others question whether social protection policies have actually crowded out social investment policies. So far, few systematic studies have examined this issue. This research aims to explore the effect of traditional social protection on social investment policies in 18 OECD countries from 1980 to 2010. To investigate the predictive and causal relationships between the two types of policies, we will use the Granger panel analysis. Then, we will adopt the Beck & Katz panel model to analyze the crowding-out effect that social protection policies have on social investment. We argue that social protection has not crowded out social investment policies in general but, rather, that the positive link between them is increasingly weaker in recent years. In the end, we discuss the theoretical and policy implications of our findings.