The purpose of this study is to investigate the effects of welfare systems and expenditures on the crisis through the case study of countries experiencing rapid economic fluctuations associated with external shocks such as global financial crises. This study also aims to derive the policy implications related to the growth-welfare virtuous cycle.

This study examined the responses to worsening income distribution indicators caused by the economic crisis and grasped the role of welfare system and welfare expenditure through international comparison in terms of automatic stabilization function to mitigate the impact of rapid economic fluctuations. We also examined the effect of welfare spending on the recession period.

The policy implications of this study are as follows. First, the welfare system and social expenditure have played a role of increasing the sustainability of the nation in response to the crisis by absorbing shocks through redistribution of income and the stabilization effect of economic fluctuations in the global financial crisis. Second, as shown in the analysis of determinants of recession exit, it is necessary to increase the labor income share and total factor productivity in order to get out of the recession quickly. Third, social expenditure plays a role of stabilizing function during recession, but it may have a negative impact on recession exit. This is closely related to the nature of the stabilization function that mitigates the impact of short-term economic fluctuations by dividing them into longer periods. Finally, since the effects of poverty and inequality reduction are not always proportional to the size of welfare expending, welfare system and policy direction should be designed and supplemented in order to enhance the effectiveness of the system.