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.