Introduction: In modern economics, equity objectives are the main reasons for government intervention. Dispensation policies are not only related to economic outcomes (such as income, etc.), but encompass other issues such as education, health and social services. This has led to entrusting the provision of social health and educational needs to the government. The purpose of this study was to investigate how much government expenditures would be effective in achieving better health outcomes.

Methods: In this study, panel data of a group of Organization of Islamic Countries (OIC) in 1991–2005 was used to explore the effectiveness of government expenditures in health and education sectors. Classical Econometrics Model (CEM) and Covariance Structure Model (CSM) were applied to analyze the relationship between public social expenditures and social indicators.

Results: The results of this study showed that the government expenditures in these sectors had significant impact on the health and education indicators in these countries. Furthermore, the superiority of the CSM model to CEM was approved in this study.

Conclusions: Since the governments are committed to achieving Millennium Development Goals, it is of prime importance to consider the effectiveness and efficiency of public expenditure. Furthermore, using particular estimation techniques, like CSM, can lead to accurate estimation of social expenditure effects and an improvement of the elasticity magnitudes.