Social Security and Economic Development

This article studies empirically the causal relationship between the
expenditures of social security and economic development in Iran’s
economy during the years 1961 to 2003. Social security programs
can affect economic development through different ways such as
their impacts on saving motive, work and utilization of labor force.
As for the relationship between social security and saving,
theoretically there exist different views each relying on empirical
evidences. Examining the relation between saving and social security
is necessary in terms of the significance of savings in providing
investment resources and economic development. However, in the
final analysis, what is much more important is the nature of the
relationship between the expenditures of social security and
economic development. Theoretically, there exist three different
views in this regard. Peter S. Barch (1969) holds that every single
percent increase in the expenditures of social security causes 0.7
increase in economic growth rate. Some like Martin Feldstein (1985)
reject this view and maintain that social security expenditures act in
contrast with the economic growth rate of the countries. A third view,
such as that put forward by Samuelson (1975) considers this
effectiveness to be linked with capital balance as compared with the
golden-rule level of saving and the type of governing social security
system. The present study, while elaborating on this relationship and
endeavoring to determine the causality direction, benefits from VAR
model and Granger causality test. The article demonstrates in
conclusion that there exists a relationship between causality from the
expenditures of social security and economic growth but the opposite
is not true, and increase in social security expenditures shall lead to a
meaningful increase in national revenue.