Unlocking the potential of social spending to reduce poverty: the moderating role of development

Purpose This study aims to examine the role of development, as indicated by the Human Development Index (HDI), in shaping the correlation of social public spending on health, education and social protection with poverty in terms of the poverty headcount ratio at $3.65/day in 2017 purchasing power parity exchange rates (2017 PPP). Design/methodology/approach Empirical analysis is used in this study, employing a panel dataset of 68 countries at varied stages of development over the period 1995–2021. The empirical model is estimated using the fixed effects two-stage least squares (2SLS). It is also re-estimated using the instrumental variable generalized method of moments and limited information maximum likelihood to check robustness. Findings The results reveal a significant negative interaction effect of development and social public spending on poverty. In other words, the correlation between social spending and poverty becomes more negative at higher HDI levels. These results are robust to different estimation techniques. Originality/value The paper contributes to the literature on country characteristics affecting the social spending and poverty relationship through assessing the moderating role of development, notably using interaction terms.