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

In this paper, we test for causality between GDP growth andsocial protection expenditure in the European Union. To that end,we apply Hsiao's (1981) sequential procedure to data for twelveEU countries along the 1970–1994 period. Our results suggestthat, for Belgium, Germany, Ireland, Luxembourg, the Netherlands,Portugal, and Spain, causality runs only from social protectiongrowth to GDP growth, while for Denmark, France, Greece, Italy,and the United Kingdom, no causality is found between socialprotection growth and GDP growth.