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Impulse and time persistence of disaggregate welfare expenditure on growth in the EU

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Abstract

In a post-industrial and globalised world, assessing the impact of Welfare State Expenditure (WSE) on economic growth has become an issue of growing interest. The debate is still open in the literature, as no consensus has currently been achieved. We argue that disaggregating WSE, the positive/negative performance dichotomy of welfare policies may be overcome. Departing from this intuition, we apply PVAR techniques in order to investigate the endogenous interactions between economic growth (proxied by GDP) and WSE, measured as single social expenditure items, using data gathered from the European System of Integrated Social Protection Statistics. Our results confirm both the positive and the negative impact of WSE on growth. Moreover, we show the existence of the different impulse responses and time persistence patterns for disaggregated WSE items. Our results imply that further research should take into account the composition of WSE in addition to its extent.

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Notes

  1. Stationarity tests drove our choice in this direction. See the next sections for more details.

  2. Following the econometric literature, we based our choice on three model selection criteria: Moment Bayesian Information Criterion (MBIC), Moment Akaike information criterion (MAIC), and Moment Hannan and Quinn information criterion (MQIC, see Andrews and Lu 2001). These criteria are very similar to the likelihood-based AIC, BIC and HQIC.

  3. We implemented several estimates, ordering the variables in different ways and we obtained very similar results. All the estimates are available upon request.

  4. ESSPROS, the integrated system of social protection statistics, provides a coherent comparison between European countries of social benefits to households and their financing. Social benefits are transfers to households, in cash or in kind intended to relieve them from the financial burden of a number of risks or needs (ESSPROS 2016).

  5. All tests are characterised by a null hypothesis that postulates a unit root.

  6. Among the first generation test we have: LLC tests (Levin et al. 2002), IPS (Levin et al. 2002) and Fisher's nonparametric tests (Maddala and Wu 1999; Choi 2001). These tests assume that data are independent and identically distributed across individuals. This assumption creates problems of bias, which leads to rejecting the null hypothesis of unit root in the presence of non-stationary (Banerjee et al. 2005). By contrast, second-generation tests allow us to detect explicit cross-sectional dependence. For tests in this second category, see the Pesaran, Breitung and Hadri test (Pesaran 2007). We omit in our analysis the Breitung and Hadri test because it requires strongly balanced data.

  7. Social exclusion refers first to an insufficient level of income (poverty), but also to precarious situations in the field of health, education and employment. The content of the social exclusion expenditure function is fairly heterogeneous (ESSPROS 2016).

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Authors and Affiliations

  1. Gran Sasso Science Institute (GSSI), Via Francesco Crispi, 7, 67100, L’Aquila, Italy

    Alessandro Crociata

  2. Department of Economic and Legal Studies, University of Naples “Parthenope”, Via Generale Parisi, 13, 80132, Naples, Italy

    Massimiliano Agovino, Nicola Mattoscio & Massimiliano Cerciello

  3. Department of Philosophical, Pedagogical and Economic-Quantitative Sciences, University “G. D’Annunzio” of Chieti-Pescara, Viale Pindaro, 42, 65127, Pescara, Italy

    Donatella Furia & Giacomo Osmi

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  1. Alessandro Crociata
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Appendix

Appendix

All coefficients resulting from the PVAR analysis conducted over the whole time-span are shown in Table 8. The results of the robustness checks are shown in the following table. In particular, Table 9 displays the coefficients obtained when covering all the EU-15 countries over the pre-crisis period and Table 10 illustrates the coefficients obtained when considering only Italy and Spain over the whole period.

Table 8 PVAR results (1995–2013)
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Table 9 PVAR results (1995–2007)
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Table 10 PVAR results (Mediterranean countries only)
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Crociata, A., Agovino, M., Furia, D. et al. Impulse and time persistence of disaggregate welfare expenditure on growth in the EU. Econ Polit 37, 13–38 (2020). https://doi.org/10.1007/s40888-019-00156-6

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