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December 2, 2015AbstractDemocratic socialist, Bernie Sanders, has become the center of attention for many potential left
wing United States voters, in the 201 presidential elections! "is candidacy raises the #$estion% issocialism an effective way to growth an economy& Using panel data controlling for co$ntries and
years, ' generated a m$ltit$de of regression models and a statistical analysis based on (D) per capita growth, in regards to a set of e*planatory variables in lie$ of democratic socialism! 'n an
effort to assess the practicality of democratic socialism, this st$dy was commenced! Some of themodels ' developed co$ld not +$stify any impact of certain socialistic val$es toward economic
growth! n the contrary, correlation and some statistical significance between the characteristicsand economic growth was discovered!
"- D.S D./A'
S'A3'S/ '/)A
.4/' (-"&
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'ntrod$ction
Democratic socialism is an ideology involving a combination of political
democracy and social ownership over the means of prod$ction, a socialist economic
system! he concept of democratic socialism has been raised into the p$blic eye recently
by ermont Senator, Bernie Sanders! Sanders plans to r$n for the 201 presidential
election and has gained a significant following in less than a year, since his
anno$ncement! )erhaps this is d$e to 526 of Democrats favoring socialism! .ven more
prevalent, 576 of Democratic voters wo$ld be o8ay with voting for a socialist 9Bla8e:!
Bernie;s r$n for presidency raises the #$estion if socialism is an effective way to operate
an economic system! By e*ploring different economic aspects comprising democratic
socialist policy, we can potentially learn how effective democratic socialism wo$ld be at
growing not only the United States economy, b$t even the economies of other nations!he e*planatory variables st$died, as well as (D) per capita growth were
meas$red as percent;s ta8en from the -orld Ban8 Development 'ndicators! )ercent
indicators were ta8en as a system of scaling the panel data and for a base of consistency
among all variables in st$dy! 't is important to $nderstand that this st$dy was completed
$sing $nbalanced panel data, with information dating bac8 to 170 from 177 co$ntries!
he socialist democrat characteristics foc$sed in this st$dy incl$de% government
e*pendit$re on ed$cation, p$blic health e*pendit$re, s$bsidies and other transfers, wage
and salaried wor8ers, and total ta* rate! .ach variable was ta8en as a piece of a greater
p$
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health e*pendit$re and wage and salaried wor8ers were all discovered to be significant at
the 16 level in negatively affecting economic growth per capita!
3iterat$re eview
A past st$dy on health e*pendit$re theory was completed investigating the impact
of (D) per capita and p$blic financing as a percentage of total financing! his article
stresses the need for more macroeconomic st$dies on health e*pendit$re impact, as well
as $pdated replications of data to $nify res$lts of previo$s analysis! )oliticians,
academics and administrators contin$o$sly $se health e*pendit$re as a disc$ssion point
as a share of (ross Domestic )rod$ct! "ealth e*pendit$re between co$ntries varies
vastly!'n this health e*pendit$re st$dy light is shed onto some of the not as apparent
effects behind health e*pendit$re between co$ntries! 't also compiles literat$re on health
e*pendit$re econometric theory, which has been of s$bstantial interest in and o$tside of
health economics, for decades! /ost efforts from different st$dies, to find possible
significance in variables to e*plain health e*pendit$re has generally raised more
#$estions! Also, many of the independent variables st$died alongside health e*pendit$re
is sparse and only br$shed $pon 9(erdtham:!'n another investigation, government e*pendit$re as a whole was of interest in
affecting economic growth! (overnment e*pendit$re;s impact on economic growth is of
partic$lar interest as it spar8s the #$estion of +$st how government impacts the economy!
(overnment e*pendit$re is $sed to represent government impact beca$se there is not
eno$gh positively correlated dimensions of economic welfare available to represent the
$ne*plained variation! .ven so tho$gh the partial relationship with government
e*pendit$re is still intrig$ing, beca$se government involvement is of s$ch interest!
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)er capital real (D) was $sed as the meas$re for the dependent variable,
economic growth! he independent variable, government e*pendit$re, was meas$red by
government spending in this st$dy! /any wo$ld arg$e more spending wo$ld increase
(D), while others wo$ld spec$late that government spending wo$ld decrease (D),
generally! 'n this st$dy, these contrasting views are p$t to the test, not attempting to
e*plain the impact of different e*pendit$res individ$al impact!D$e to theoretical limitations behind government e*pendit$re, wea8ens the data!
-ith that said the negative beta val$es, fo$nd in this st$dy, for most co$ntry income
levels co$ld be insightf$l! he res$lts are consistent with a pro> free mar8et viewpoint, in
that growth of government h$rts economic growth 93anda$:!
Another st$dy investigates the implications of fiscal policy on economic growth!
/any economists hold an opinion on fiscal policy as a growth determinant for economic
well>being of a partic$lar co$ntry, in some respect! 't is a well reno$nced belief that
elements of fiscal policy s$ch as ta*ation, p$blic investment and more contrib$te to
growth! he empirical evidence giving light on the importance of fiscal policy in
infl$encing economic growth is rather sparse! -ith that said, the meas$rement error in
the data sets $sed is rather s$bstantial, b$t there is #$ite a bit of information at the same
time!
As a res$lt of this fiscal policy st$dy, any indication that ta* rates are a
determinate of economic growth, is delicate! 't is e*ceptionally diffic$lt to determine the
effects of ta* policy on growth, with this st$dy hinting ta*es may not even matter in
terms of economic growth! a$sality #$estions still linger to the effect of the fiscal
policy based variables $sed on economic growth 9.asterly:!
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3iterat$re has also been p$blished on the impact of immigration on host co$ntry
wages, employment and economic growth! An indisp$tably to$chy iss$e thro$gho$t
ind$striali
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an alternative hypothesis, the social economic variables $sed had an impact in e*plaining
economic growth!
Data Analysis
o test the impact of social economic variables on (D) per capita growth, the
following pop$lation model was $sed% y 0 C 1* C where y is the 6 ann$al (D) per
capita growth and * contains government e*pendit$re on ed$cation and p$blic health
e*pendit$re meas$red as 6 of total government e*pendit$re! Also contained within *%
s$bsidies and other transfers as a 6 of total e*pense, total ta* rate as a 6 of commercial
profit, and wage and salaried wor8ers as a 6 of total employed! .ach variable of interest
was meas$red as a percentage, in order to standardi
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e*pendit$re comprises of intermittent and capital, b$dget based government spending,
social health ins$rance f$nds and grants!
a*es withheld and remitted to ta* a$thorities are e*cl$ded from total ta* rate as a
6 of commercial profits! otal ta* rate does meas$re the ta*es b$sinesses m$st pay after
ded$ctions and any commercial profit e*emptions are made! 't is important to note that
some ta* rates will be range above 1006, beca$se b$sinesses can be ta*ed in vario$s ta*
brac8ets based on commercial profits, depending on different co$ntries fiscal policies
94ew Eor8 imes:! -age and salaried wor8ers are defined as wor8ers who have held a
+ob with contracted paid employment! -age and salaried wor8ers can be viewed b$t not
defined as a f$nction and representation of legal employment within a co$ntry!
-ith s$ch range of variables of interest, comes a wide range of observations
between variables! @or (D) per capita growth, F15? observations were gathered, while
for government e*pendit$re on ed$cation only 15G= observations were fo$nd! -ith that
said, the social economic variable data was $nbalanced as panel data with (D) per capita
growth! he difference in observations between variables ca$ses somewhat of a loss of
efficiency in the data gathered! Unfort$nately, the missing data is systematic and ca$sed
by a limitation and inconsistency in data provided by the -orld Ban8 Development
'ndicators which were $sed for this st$dy! .ven with this iss$e of total observational
variation, paneling the variables $sed with co$ntries and years is essential to controlling
s$ch large samples! Unbalanced data may be the res$lt, b$t is not a deliberate concern!
Using both fi*ed and random effects models, in 3S regression analysis, will acco$nt for
a range of possible concl$sions!
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Descriptive statistics for each variable depict the shape of their respective
distrib$tions! (D) per capita growth holds a mean of abo$t 2!16 with a standard
deviation of abo$t !G6! -ith a minim$m val$e of 56 and a ma*im$m val$e of abo$t
1F26, ' relatively spread o$t distrib$tion co$ld be drawn! -ith a standard deviation of
?!56, p$blic health e*pendit$re wo$ld have a more condensed distrib$tion ranging from
abo$t !16 to =?!?6 9able 1:! 't can been recogni
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independence of each variable of interest, a correlation matri* is displayed within able
2!
All variables of interest have a correlation between >0!5 and !5, indicating wea8 to
no correlation! ariables with the highest correlation incl$de s$bsidies and other
transfers in relation to government e*pendit$re on ed$cation and p$blic health
e*pendit$re! -age and salaried wor8s had a partic$larly wea8 b$t still prevalent
correlation to p$blic health e*pendit$re and s$bsidies and transfers! he most important
item to recogni
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variable so controlling for time is an especially necessary action, especially in the m$lti>
linear regression, where only =7F observations were $sed!
Both the fi*ed effects and the fi*ed time effects models fo$nd government
e*pendit$re on ed$cation, p$blic health e*pendit$re and wage and salaried wor8ers
significant at the 16 level! Additionally, the fi*ed effects model showed s$bsidies and
transfers significant at the 106 level! 'n a fi*ed effects m$ltilinear regression, p$blic
health e*pendit$re was significant at the 106 level! otal ta* rate was significant at the
56 level $nder a fi*ed effects model, b$t was fo$nd insignificant when controlling for
time! 'n a fi*ed time effects m$ltilinear regression, p$blic health e*pendit$re was
discovered significant at the 56 level!
-ith that said, the fi*ed effects model based tables showed significance between
specific social economic variables and (D) per capita growth! Using rob$st fi*ed
effects, for each percent increase in government e*pendit$re on ed$cation, (D) per
capita growth is estimated to decrease by !07? percent! @or every percent increase in
p$blic health e*pendit$re, (D) per capita growth decreases by !0G= percent! @or every
percent increase in e*pense of s$bsidies and other transfers, (D) per capita growth is
raised by !00F percent! @or every percent increase in wage and salaried wor8ers of total
employed, (D) per capita growth decreases by !02= percent! 'n m$ltilinear fi*ed effects
regression, for each percent increase in p$blic health e*pendit$re, (D) per capita growth
raises by !5G percent! Also for each percent of commercial profits increase in total ta*
rate, (D) per capita growth is increased by !117 percent! 't is also important to recognitest significance at the 106 level!
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-hen controlling for time, coefficient o$tp$ts for a rob$st fi*ed effects model
were #$ite different! -ith each percent increase in government e*pendit$re on
ed$cation, (D) per capita growth is estimated to decrease by !07G percent! @or each
percent increase in p$blic health e*pendit$re, (D) per capita growth is decreased by !0G2
percent! @or each percent increase in wage and salaried wor8ers of total employed, (D)
per capita growth decreases by !02 percent! 'n m$ltilinear fi*ed time effects regression,
for every percent increase in p$blic health e*pendit$re, (D) per capita growth increases
by !== percent! 'n this model, the +oint variable probability test is significant at the 16
level!
'n the rob$st random effects model, controlling for co$ntries, for each percent
increase in wage and salaried wor8s of total employed, (D) per capita growth decreases
by !0G percent! 'n a m$ltilinear regression model, with rob$st random effects and
controlling for co$ntries, for each percent increase in p$blic health e*pendit$re, (D) per
capita growth is estimated to increase by !5G percent! Under the same model, for every
percent increase in total ta* rate as a segment of commercial profits, (D) per capita
growth is estimated to increase by !117 percent!
/ost of the variables of interest which were fo$nd most significant, were only
significant when individ$ally regressed with (D) per capita growth! 'ndivid$al
regressions co$ld have demonstrated a greater significance, beca$se more so of each
regressions total variation was e*plained by their models, than that of the m$ltilinear
regressions! his is portrayed by the ad+$sted 2 val$es, given in the fi*ed time effects
tables! -hen time was not controlled for, this theory was shown to not be as li8ely as
relevant for variables, as less of the total variation for each model co$ld be e*plained!
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@or that reason, it co$ld be arg$ed that the coefficients for fi*ed effects are not as
acc$rate as the coefficients for fi*ed time effects, beca$se significantly less variation is
acco$nted for!
oncl$sion
he impact of p$blic health e*pendit$re, total ta* rate and wage and salaried
wor8ers on (D) per capita growth were most apparent! verall, s$ggesting that
individ$ally these significant variables negatively impact economic growth, while
together in m$ltilinear regression hold a positive impact! 'n a more real world scenario,
these social economic variables definitely come hand in hand! -ith that said, it is most
important to recogni
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he positive impact on economic growth that these variables have, can s$pport
ideologies s$ch as that a healthy wor8 force is a more prod$ctive one and that ta*ing big
b$siness is healthy! Ees, more information can and sho$ld be gathered on the impact of
increasing total ta* rate and p$blic health e*pendit$re! @or e*ample, the effect of total
ta* rate and p$blic health e*pendit$re on employment! 'f employment decreases, d$e to
these social economic variables, then nat$rally the economy wo$ld be s$ffer! Statistically
tho$gh, increasing these variables wo$ld be healthy to growing the United States
economy and sho$ld be raised accordingly!
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eferences
Bla8e, Aaron! Io$ld a Socialist Act$ally Be .lected )resident&I Washington Post ! he
-ashington )ost, 1G A$g! 2015! -eb! =0 4ov! 2015!
.asterly, -illiam, and Sergio ebelo! I@iscal policy and economic growth!I Journal of monetary
economics =2!= 9177=:% ?1G>?5F!
@riedberg, achel /!, and Jennifer "$nt! Khe 'mpact of 'mmigrants on "ost o$ntry -ages,
.mployment and (rowthL! The Journal of Economic Perspectives7!2 91775:% 2=M??! -eb!!!
(erdtham, Ulf>(!, and Bengt JNnsson! I'nternational comparisons of health e*pendit$re% theory,
data and econometric analysis!I Handbook of health economics 1 92000:% 11>5=!
I"ow 't;s )ossible to )ay a 1006 a* ate!I The New York Times! he 4ew Eor8 imes, 02 @eb!
2012! -eb! 01 Dec! 2015!
3anda$, Daniel! K(overnment .*pendit$re and .conomic (rowth% A ross>co$ntry
St$dyL! outhern Economic Journal ?7!= 917F=:% GF=MG72! -eb!!!
-orld Development 'ndicators, he -orld Ban8
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ables
Table 1 - S$mmary Statistics able% Economic !rowth and ocial Economic "ariables
Variable Metric Observations Mean Standard
Deviation
Minimum
Value
Maximum
Value!#P per
capita
!rowth
6 ann$al F15? 2!10? !5? >?!77G 1F2!=5
!ov$
E%penditure
on Edu$
6 of gov!
e*pendit$r
e
15G= 15!05= ?!77 =!22 ??!F
Health
E%penditure&
public
6 of gov!
e*pendit$r
e
=50? 11!201 ?!50? !077 =?!?12
ubsidies and
other
transfers
6 of
e*pense
17G =G!50F 21!051 !0F 70!F
Total Ta%
'ate
6 of
commercia
l profit
1G7= ?G!G= =G!=0? G!? ==7!1
Wage and
salaried
workers
6 of total
employed
2217 G0!G= 17!G=2 1!? 77!
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Table 2 - orrelation /atri*% Economic !rowth and ocial Economic "ariables
GDP per
capita
Growth
Gov.
Expenditure
on Edu.
Health
Expenditure,
public
Subsidies
and other
transfers
Total Tax
Rate
Wae and
salaried
wor!ers!#P per
capita
!rowth
1!0000
!ov$
E%penditure
on Edu$
0!00G5 1!0000
Health
E%penditure&
public
> 0!22?7 > 0!022 1!0000
ubsidies
and other transfers
> 0!125 > 0!?0=1 0!?11G 1!0000
Total Ta%
'ate
0!017F > 0!177? 0!0=5G 0!2G25 1!0000
Wage and
salaried
workers
> 0!2F? > 0!2=G1 0!?5G2 0!?G=2 > 0!01?1 1!0000
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Table 3 - /$ltilinear egression% @i*ed .ffects /odel
(1) (2) (3) (4) (5) ()
!ov$
E%penditure
on Edu$
> !07?OOO
9?!0F:
>!177
9!1F2:
Health
E%penditure&
public
> !0G=OOO
9!022:
!5GO
9!?21:
ubsidies and
other
transfers
!00FO
9!005:
>!00F
9!0?F:
Total Ta%
'ate
> !002
9!002:
!117OO
9!052:
Wage and salaried
workers
> !02=OOO9!005:
> !1?F9!15F:
onstant ?!0FOOO
9!?=F:
=!=75OOO
9!275:
2!110OOO
9!21=:
2!502OOO
9!1F0:
?!0=GOOO
9!=5?:
=!G11
910!0G:
bservations 1555 =?25 1720 1G2 21G =7F
)rob! P @ 0!000 0!001 0!0G0 0!=27 0!000 0!0GG
!d"# $ 2 0!012 0!00= 0!002 0!000 0!01? 0!0F7
4otes% ob$st standard errors reported! oefficient significance noted at levels 16, 56 and106 with OOO, OO, O!
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Table 4 % /$ltilinear egression% @i*ed ime .ffects /odel
(1) (2) (3) (4) (5) ()
!ov$
E%penditure
on Edu$
> !07GOOO
9!025:
>!2FG
9!21:
Health
E%penditure&
public
> !0G2OOO
9!02=:
!==OO
9!=0G:
ubsidies and
other
transfers
!00
9!00?:
!00=
9!0=2:
Total Ta%
'ate
> !00?
9!002:
>!017
9!0=F:Wage and
salaried
workers
> !020OOO
9!005:
!000
9!117:
onstant ?!005OO
9!=57:
=!070OOO
9!511:
!=F0
91!01?:
=!F=5OOO
9!==1:
=!011OOO
9!15:
=!G11
910!0G:
bservations 1555 =?25 1720 1G2 21G =7F
)rob! P @ ! 0!000 0!000 0!000 0!000 0!000
!d"# $ 2 0!150 0!0?5 0!15 0!07G 0!170 0!0F7
4otes% ob$st standard errors reported! oefficient significance noted at levels 16, 56 and106 with OOO, OO, O!
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Table 5 % /$ltilinear egression% andom .ffects /odel
(1) (2) (3) (4) (5) ()
!ov$
E%penditure
on Edu$
> !01G
9!0?1:
>!177
9!22:
Health
E%penditure&
public
> !02
9!05?:
!5GOO
9!2:
ubsidies and
other
transfers
!015
9!01?:
>!00F
9!0=F:
Total Ta%
'ate
> !002
9!00:
!117OO
9!01=:
Wage and
salaried
workers
> !0GOOO
9!021:
> !1?F
9!1?7:
onstant =!G25
92!=20:
5!?25OOO
91!F12:
G!2F5OOO
92!2=G:
5!71OOO
91!757:
!F=OOO
91!2==:
>5!22F
9F!2??:
4otes% ob$st standard errors reported! Data controlled by co$ntry! oefficient significancenoted at levels 16, 56 and 106 with OOO, OO, O!
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Appendi*
o$ntries in St$dy
Afghanistan ongo, ep! 'ndia /ongolia
Albania osta ica 'ndonesia /ontenegroAlgeria ote dQ'voire 'ran, 'slamic ep! /orocco
Andorra roatia 'ra# /o
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SomaliaSo$th AfricaSo$th S$dan
SpainSri 3an8aSt! itts and 4evisSt! 3$ciaSt! incent and (renadines
U