IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

The welfare state, thresholds, and economic growth

Author Info

Listed author(s):
  • Fic, Tatiana
  • Ghate, Chetan

Abstract

Can a growing welfare state induce a regime switch in the growth rate of an econ-omy? This paper constructs a dynamic political economy model of economic growth and the welfare state in which both variables are non-linearly related and jointly en-dogenous. Using a Markov switching framework over the period 1950-2001, we find that the structural decline in growth rates that several welfare state economies expe-rienced during 1970-1975 are preceded by movements to a high welfare state regime. This suggests that expanding welfare state regimes are associated with low economic growth regimes, while contracting welfare state regimes are associated with high growth regimes. However, we also find that the structural decline in growth rates leads to a downward structural break in the welfare state for many welfare state economies. This suggests that declining growth regimes are associated with contracting welfare state regimes, as lower growth forces politicians to cut the size of the welfare state. We also report strong evidence that both expansion and contractions in the welfare state affects growth non-linearly. These results are able to characterize a predictable and general pattern of welfare state-growth evolution.

(This abstract was borrowed from another version of this item.)

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/pii/S0264-9993(04)00067-7
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 22 (2005)
Issue (Month): 3 (May)
Pages: 571-598

as
in new window

Handle: RePEc:eee:ecmode:v:22:y:2005:i:3:p:571-598
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30411

Keywords:

Other versions of this item:

Find related papers by JEL classification:
  • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism
  • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
  • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
  • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. Carlos Mulas-Granados, 2003. "The Political and Economic Determinants of Budgetary Consolidation in Europe," European Political Economy Review, European Political Economy Infrastructure Consortium, vol. 1(Spring), pages 15-39.
  2. Vito Tanzi & Howell H. Zee, 1997. "Fiscal Policy and Long-Run Growth," IMF Staff Papers, Palgrave Macmillan, vol. 44(2), pages 179-209, June.
  3. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
  4. Ghate, Chetan & Zak, Paul J., 2002. "Growth of government and the politics of fiscal policy," Structural Change and Economic Dynamics, Elsevier, vol. 13(4), pages 435-455, December.
  5. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 70(1), pages 65-94.
  6. William A. Brock & Steven N.Durlauf, 2000. "Growth Economics and Reality," NBER Working Papers 8041, National Bureau of Economic Research, Inc.
  7. Ghate Chetan, 2003. "The Politics of Endogenous Growth," The B.E. Journal of Macroeconomics, De Gruyter, vol. 3(1), pages 1-18, August.
  8. Robert J. Barro & Paul Romer, 1993. "Economic Growth," NBER Books, National Bureau of Economic Research, Inc, number barr93-1, 01.
    • Robert J. Barro & Paul M. Romer, 1991. "Economic Growth," NBER Books, National Bureau of Economic Research, Inc, number barr91-1, 01.
  9. Shigehara, Kumiharu, 1992. "Causes of declining growth in industrialized countries," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 15-39.
  10. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 103-126, October.
  11. Levine, Ross & Renelt, David, 1991. "Cross-country studies of growth and policy : methodological, conceptual, and statistical problems," Policy Research Working Paper Series 608, The World Bank.
  12. Turnovsky, Stephen J. & Fisher, Walter H., 1995. "The composition of government expenditure and its consequences for macroeconomic performance," Journal of Economic Dynamics and Control, Elsevier, vol. 19(4), pages 747-786, May.
  13. Easterly, William & Rebelo, Sergio, 1993. "Fiscal policy and economic growth: An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 417-458, December.
  14. David Romer, 2003. "Misconceptions and Political Outcomes," Economic Journal, Royal Economic Society, vol. 113(484), pages 1-20, January.
  15. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-963, September.
  16. Durlauf, Steven N. & Quah, Danny T., 1999. "The new empirics of economic growth," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 4, pages 235-308 Elsevier.
  17. Paul M. Romer, 1987. "Crazy Explanations for the Productivity Slowdown," NBER Chapters,in: NBER Macroeconomics Annual 1987, Volume 2, pages 163-210 National Bureau of Economic Research, Inc.
  18. Nordhaus, William D., 1982. "Economic policy in the face of declining productivity growth," European Economic Review, Elsevier, vol. 18(2), pages 131-157.
  19. Campbell, John Y. & Mankiw, N. Gregory, 1991. "The response of consumption to income : A cross-country investigation," European Economic Review, Elsevier, vol. 35(4), pages 723-756, May.
  20. Nicholas Barr, 1992. "Economic theory and the welfare state : a survey and interpretation," LSE Research Online Documents on Economics 279, London School of Economics and Political Science, LSE Library.
  21. Baumol, William J & Wolff, Edward N, 1988. "Productivity Growth, Convergence, and Welfare: Reply," American Economic Review, American Economic Association, vol. 78(5), pages 1155-1159, December.
  22. Durlauf,S.N., 2000. "Econometric analysis and the study of economic growth : a skeptical perspective," Working papers 10, Wisconsin Madison - Social Systems.
  23. Bruce E. Hansen, 2001. "The New Econometrics of Structural Change: Dating Breaks in U.S. Labour Productivity," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 117-128, Fall.
  24. Kiminori Matsuyama, 1999. "Growing Through Cycles," Econometrica, Econometric Society, vol. 67(2), pages 335-348, March.
  25. Hansson, Asa & Stuart, Charles, 2003. "Peaking of fiscal sizes of government," European Journal of Political Economy, Elsevier, vol. 19(4), pages 669-684, November.
  26. Rioja, Felix K., 1999. "Productiveness and welfare implications of public infrastructure: a dynamic two-sector general equilibrium analysis," Journal of Development Economics, Elsevier, vol. 58(2), pages 387-404, April.
  27. Blomberg, S Brock, 1996. "Growth, Political Instability and the Defence Burden," Economica, London School of Economics and Political Science, vol. 63(252), pages 649-672, November.
  28. Baumol, William J, 1986. "Productivity Growth, Convergence, and Welfare: What the Long-run Data Show," American Economic Review, American Economic Association, vol. 76(5), pages 1072-1085, December.
  29. A. B. Atkinson, 1999. "The Economic Consequences of Rolling Back the Welfare State," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011719, July.
  30. Tanzi, Vito & Schuknecht, Ludger, 1997. "Reforming government: An overview of recent experience," European Journal of Political Economy, Elsevier, vol. 13(3), pages 395-417, September.
  31. Graham C. Scott, 1996. "Government Reform in New Zealand," IMF Occasional Papers 140, International Monetary Fund.
Full references (including those not matched with items on IDEAS)

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

as
in new window


Cited by:

  1. Marta Simões & Adelaide Duarte & João Sousa Andrade, 2014. "Assessing the Impact of the Welfare State on Economic Growth: A Survey of Recent Developments," GEMF Working Papers 2014-20, GEMF, Faculty of Economics, University of Coimbra.
  2. repec:eee:ecmode:v:64:y:2017:i:c:p:270-287 is not listed on IDEAS
  3. Adelaide Duarte & Marta Simões & João Sousa Andrade, 2014. "Estado Social, Quantis, Não-Linearidades e Desempenho Económico: Uma Avaliação Empírica," GEMF Working Papers 2014-21, GEMF, Faculty of Economics, University of Coimbra.
  4. João Sousa Andrade & Marta Simões & Adelaide Duarte, 2013. "Despesa Pública em Educação e Saúde e Crescimento Económico: Um Contributo para o Debate sobre as Funções Sociais do Estado," GEMF Working Papers 2013-18, GEMF, Faculty of Economics, University of Coimbra.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Access and download statistics

When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:22:y:2005:i:3:p:571-598. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.