Title: Graduation hypothesis: does government social spending follow the pattern of fiscal response?

Authors: Deepti Ahuja; Deepak Pandit; Srinath Beldona

Addresses: Indian Institute of Management, Rohtak, City Southern Bypass, Sunaria, Rohtak, Haryana, 124010, India ' BML Munjal University, 67th Milestone, National Highway – 8, Sidhrawali, Gurugram, Haryana – 122413, India ' University of Dallas, 1845 E Northgate Dr, Irving, TX 75062, USA

Abstract: This paper provides evidence for the cyclical behaviour of public social spending in 65 industrial and developing countries during 1980-2010. In view of the recent economic crisis, we pay particular attention to whether government spending in the social sector has followed the pattern of fiscal response: whether the developing world could escape the procyclicality trap and behave countercyclically. The estimates based on correlation and panel regression analysis show that developing countries were able to graduate from procyclical to countercyclical social spending. The study further examines the factors that affect the way social spending is conducted in these countries. Given the current pandemic situation, it is believed that developing countries could address the health crisis by undertaking comprehensive reform programs to slow the spread of the pandemic and alleviate the economic damage.

Keywords: COVID-19; social spending; institutional quality; procyclicality; debt-GDP ratio.

DOI: 10.1504/IJICBM.2022.127737

International Journal of Indian Culture and Business Management, 2022 Vol.27 No.4, pp.466 - 487

Received: 08 Mar 2021
Accepted: 01 Jun 2021
Published online: 15 Dec 2022 *

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