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The Welfare State and Economic Growth

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  • Vratislav Izák

Abstract

The paper examines whether redistribution policy is bad or good for economic growth by analysing government expenditure on the welfare state in the old and new post-socialist EU countries from the mid-1990 to 2008. Due to the differences among countries fixed effect is included in the model using panel data. We find negative association between the mean values of expenditure on the welfare state in several time periods and the subsequent GDP growth rate for EU-25 and also for the subsets (EU-15 and EU-10) of the EU countries. When taking into account explicitly the government budget constraint and applying dynamics the same conclusion can be drawn for EU-25. Welfare state expenditure has statistically significant negative coefficient confirming the postulated hypothesis of a negative impact on the GDP growth rate.

Suggested Citation

  • Vratislav Izák, 2011. "The Welfare State and Economic Growth," Prague Economic Papers, Prague University of Economics and Business, vol. 2011(4), pages 291-308.
  • Handle: RePEc:prg:jnlpep:v:2011:y:2011:i:4:id:401:p:291-308
    DOI: 10.18267/j.pep.401
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    More about this item

    Keywords

    economic growth; government expenditure; welfare state; panel fixed effects;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H5 - Public Economics - - National Government Expenditures and Related Policies

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