Growth and the Welfare State in the EU: A Causality Analysis.

Abstract

In this paper, we test for causality between GDP growth and social protection expenditure in the European Union. To that end, we apply Hsiao's (1981) sequential procedure to data for twelve EU countries along the 1970-94 period. Our results suggest that, for Belgium, Germany, Ireland, Luxembourg, the Netherlands, Portugal, and Spain, causality runs only from social protection growth to GDP growth, while for Denmark, France, Greece, Italy, and the United Kingdom, no causality is found between social protection growth and GDP growth. Copyright 2001 by Kluwer Academic Publishers