particularly in nations with inflexible budgetary structures (Ardanaz and Izquierdo, 2017). Public consumption, on the other hand, tends to be procyclical in the developing world, while findings in advanced countries are less conclusive.<sup>11</sup> In addition to these non-automatic spending categories, automatic stabilizers like unemployment insurance and targeted social programs have proven to be effective countercyclical tools. Their effectiveness in smoothing household income and consumption hinges on institutional design and budgetary size, with a more prominent role in advanced economies compared to developing nations, as previously mentioned.

Recent studies have also delved into the role of social security spending, yielding mixed results. Darby and Melitz (2008) discovered that retirement and pension transfers to households have a stabilizing effect in a sample of OECD countries. Wibbels (2006) revealed that social security spending, using a broader definition encompassing pension, has no direct link to the business cycle and is therefore acyclical, both in OECD and Latin American countries. Vegh et al (2021) found that social security spending demonstrates mild countercyclicality or acyclicity in advanced economies while being strongly procyclical in developing countries. In summary, the cyclical attributes of social security spending appear to vary depending on the country and the specific program under consideration.

# **_3.1.2 Breaking down spending cyclicality in Argentina_**

In Argentina, government consumption, social security spending, and public investment constitute the primary components of the overall budget. Based on official data from 2022, which aggregates the central government and the 24 sub-national administrations' public accounts, public primary spending amounted to an estimated 37 percent of GDP, with these three categories—government consumption, public investment, and social security—accounting for almost three-quarters of this expenditure ( **Figure 6** ). Public consumption represents the largest portion, constituting 13.5 percent of GDP (with the wage bill accounting for nearly 11 percent of GDP).<sup>12</sup> Social security spending reached 10 percent of GDP, primarily driven by the various pension sub-systems. Meanwhile, public investment comprised 3.8 percent of GDP in 2022. The remaining 9.5 percent of GDP in spending is largely attributed to various types of transfers to households, private and public enterprises, including energy and transport subsidies. Remarkably, the unemployment insurance program is insignificant in budgetary matters and is equivalent to only 0.02 percent of GDP in 2022, pushing other -typically more rigid- items to replace the role of unemployment insurance.

> 11 For instance, Lamo, Perez and Schuknecht (2007) show evidence that public consumption items, namely the wage bill, co-moves with the business cycle in a procyclical way with a 1–2-year lag, for most of the euro area countries. Moreover, the authors prove that wage bill procyclicality appears to derive mainly from wage-setting behavior as opposed to employment decisions. In a similar vein, Holm-Hadulla et al (2010) build on previous works by showing evidence of strong co-movements between public and private wages, suggesting that governments should be cautious so that wage-setting and employment measures do not put macroeconomic balances at risk. Moreover, opting for a different methodology, Eckardt and Mills (2014) show that public sector wage bill spending across Europe and Central Asia tends to behave pro-cyclically, especially in transition economies. At last, according to Ilzetzki and Vegh (2008), public consumption is mildly procyclical in high income countries, though far less procyclical than in developing countries.

> 12 The data for overall public consumption is an estimate since official figures exclude municipal spending. However, they do include the transfers made by the provinces to the municipalities. It is assumed that 70% of these transfers to municipalities are spent on consumption spending (given that consumption spending represents that proportion of total municipal spending and that provincial transfers finance two-thirds of total municipal spending).