Study on the relationship between SOCX and financial sustainability comparing OECD 19 Countries

Abstract

The increase in social expenditure due to the fact that aging population increases and the working population decreases is taking place in advanced countries. Given that social expenditure is a main part of mandatory spending of fiscal balance, it brings the concern of fiscal sustainability. The aim of this research is to investigate the relations between social expenditure and fiscal sustainability in 19 OECD countries from 2000 to 2018. 19 countries were divided into four groups, the southern Europe, the liberal, the central Europe, and the Northern Europe, except Korea and Japan. This research placed structural factors at its analytic centre using hybrid panel data model. Furthermore, this research examined the question as to whether the past time series of variables can predict other variables through granger causality test. For the purpose of analysis of granger causality test, IPS unit root test is used. Research result portraits that organization capacity is significant to explain the change of social expenditure at the 0.1 level of significance, holding other factors are constant. Granger causality test is rendered social expenditure and fiscal sustainability variables are granger caused each other for the last 18 years in most case. However, this research has largely two limitations; limitation of variables and short time series. Notwithstanding, this research is significant that using fiscal structural factors explains the change of social expenditure.