AN ANALYSIS OF THE IMPACT OF PUBLIC PENSION SPENDING ON ECONOMIC-GROWTH IN THE AFFLUENT DEMOCRACIES 1960-1988

This paper addresses the debate as to the impact of public pension spe nding (the single largest component of welfare state spending) on econ omic growth rates. We examine the effect of pension spending on econom ic growth from two perspectives, aggregate pension expenditure and pen sion expenditure per recipient, in a study based on pooled time-series cross-section social indicator models for 18 affluent industrial demo cracies for the period between 1960 and 1988. We find that for the per iod between 1960 and 1973 the level of pension spending does not have a substantial impact on economic growth. For the period between 1974 a nd 1988 we find some evidence of a negative impact; an impact that is statistically significant, but modest in magnitude. Two control variab les (percent of the labor force working in the agricultural sector and years of democracy) generally worked as predicted.