Paul De Grauwe () (K.U.Leuven, C.E.S., International Economics) Magdalena Polan () (K.U.Leuven, C.E.S., International Economics)
Abstract
We provide evidence indicating that countries with well-developed social security systems do not necessarily face a trade-off between social spending and competitiveness. On average, countries that spend a lot on social needs score well in the competitiveness league. We investigate the importance of a reverse causality from competitiveness to social spending, and find that this is weak. We also present some possible explanations for our empirical finding. Finally, we interpret our findings in the framework of a theoretical model in which risk affects the size of the social sector and in which social spending affects the production function of the private sector.
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Publisher Info
Paper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën, International Economics in its series International Economics Working Papers Series with number
wpie011.
Find related papers by JEL classification: F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General F10 - International Economics - - Trade - - - General F15 - International Economics - - Trade - - - Economic Integration
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