When the Economy Slows, Spending on Incapacity Benefits, Health and Pensions Increases – and May Keep us Out of Recession

RES logoIn the last of our podcasts supporting the Royal Economic Society Conference 2008, Romesh Vaitilingam talks to Jacques Melitz about how increased spending on Social Security benefits may help to keep us out of recession.

Listen to the interview

[audio:http://www.intute.ac.uk/socialsciences/blog/wp-content/files/darbymelitz.mp3%5D

Increased public spending on incapacity benefits, health and pensions can all help the economy recover in a slowdown or recession. That is one of the findings of new research by Professors Julia Darby and Jacques Melitz presented at the Royal Economic Society’s 2008 annual conference.

In a slowdown some policies help the economy recover automatically. A recession increases the total amount spent on unemployment benefit (as more people are claiming it) and reduces the total tax take (as people’s tax bills drop). This helps to stimulate the economy without any active government intervention.

The report finds that these ‘automatic stabilisers’ play an even greater role smoothing the business cycle than previously thought. This is because programmes such as incapacity benefit, pensions and health spending all act as such stabilisers as well.

Find out more about this piece of research on the Economics in Action blog. Read more research papers by Jacques Melitz at EconPapers. Intute: Social Sciences features more Internet resources on the topic of economics.

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