Date of Award


Document Type


Degree Name

Master of Science (MS)


Economics & Finance

First Advisor

Fathollah Bagheri


Social spending is a large and controversial program within the United States. Though a number of studies examined its effects on Gross Domestic Product (“GDP”) between countries, very few specifically looked at its effectiveness solely within the United States. By doing so, international political policy deviations are controlled for. Further, most studies neglect the externalities of social spending on living standards. This paper fills these gaps by utilizing two US Census aid datasets – state & local spending and federal aid & transfer payments – for all 50 states to study the effects of social spending on Gross Domestic Product, Income, and Personal Consumption Expenditures

Using two-stage residual inclusion estimation, the analysis first predicts social spending variables using its lags and Gross Domestic Product, Income, or Personal Consumption. In the second stage, the first-stage residuals predict Gross Domestic Product, Income, or Personal Consumption. Using this method, the short-term positive marginal benefits were found for Housing (≈$12 on GDP and income), Incapacity (≈$3 on income), Workers’ Compensation (≈$31 on GDP and income) and Other (≈$1.75 on income and personal consumption) spending. Negative effects were found to varying degrees on GDP, income and personal consumption for Family, Health, Labor, Unemployment and Old Age spending. Most variables were consistent between the two datasets and with prior studies. However, differences in the direction from prior studies of the effect on Gross Domestic Product arose for Health, Old Age and Unemployment.

Additionally, this paper looks into the interplay of politics with social spending. In particular, how particular years, the political party and gubernatorial turnover are related to social spending and its effects on both the economy and standards of living. Both Labor and Welfare spending show strong influences from political policies.

Effects_of_Social_Spending_STATA_DATA .zip (1837 kB)
Effects of Social Spending Data