The impact of government spending on well-being: a case of upper middle-income countries and high-income countries

Abstract

The welfare effects of government redistributive policy have been subject to considerable debate for decades. Against this background, this study explores the effect of government social spending on an empirically constructed measure of well-being in a panel of 16 upper middle-income countries and 38 high-income countries observed between 2002 and 2019. The study utilises the Generalised Method of Moments (GMM) Model to estimate the empirical relationship between government social spending and well-being. The results suggest that welfare gains in upper middle-income countries are derived from redistributive spending that prioritises schooling. On the other hand, rich countries are more likely to benefit from health-related spending. Based on the results the study confirms that disaggregated social spending in upper middle-income nations and wealthy nations does not impact aggregate well-being uniformly. Therefore, efforts to improve aggregate welfare through government redistributive spending ought to consider these attendant heterogeneities.

Keywords

• Well-being
• government spending
• education
• health
• System GMM
• Economics