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Healthy, Educated and Wealthy: Is the Welfare State Really Harmful for Growth?

  • Sergio Beraldo
  • Daniel Montolio Estivill
  • Gilberto Turati

    (Universitat de Barcelona)

In this paper, we study how public and private expenditures in health and education affect economic growth by their influence on peoples health, abilities, skills and knowledge. We consider a growth accounting framework in order to test whether welfare expenditures more than offset the efficiency losses caused by distortionary taxation, and whether the effects of public expenditure on economic growth differ from those of private expenditure. Our empirical analysis is based on a panel of 19 OECD countries observed between 1971 and 1998. The results are consistent with the hypothesis that the contribution of welfare expenditures more than compensates for the distortions caused by the tax system; and the estimated positive impact is stronger for health than for education. We also find some evidence that public expenditure influences GDP growth more than private expenditure.

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Paper provided by Universitat de Barcelona. Espai de Recerca en Economia in its series Working Papers in Economics with number 127.

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Length: 31 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:bar:bedcje:2005127
Contact details of provider: Postal: Espai de Recerca en Economia, Facultat de Ciències Econòmiques. Tinent Coronel Valenzuela, Num 1-11 08034 Barcelona. Spain.
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