ECONOMIC GROWTH, PUBLIC DEBT AND SOCIAL SPENDING. SHOULD WELFARE STATE TAKE THE BLAME?

Abstract

In this paper we trace the relation between economic growth, public debt and social spending treated as a proxy for welfare state spending in the context of 2008+ crisis in advanced capitalist economies. We focus on the alleged causality between high welfare spending and growing public debt which is often said to have contributed to the current debt crisis experienced by many countries and we elaborate on the often heralded thesis that high social spending leads to low growth levels. By doing so we intend to find out if welfare states can indeed be identified as a source of current fiscal problems and prosperity issues. We perform our analysis on a group of 21 highly developed countries in 1991–2014 period basing on OECD data. Our findings suggest that evidence to support such theses are mixed and rather weak and do not allow for drawing firm conclusions about harmful impact of welfare state on economic performance. On this background we also comment on the usability of statistics and case studies in social sciences.