Is Social Protection Expenditure or an Investment? A Cross-Country Comparison in the European Union

The relationship between social protection, growth and income inequality is an important issue in modern societies. However, there exists no consensus about these relationships because government activity could be carried out inefficiently, due to excessive burdens or even because it can reduce the productivity of the system. In this paper, the correlation between social expenditure, economic growth and income inequality is studied. The analysis is based on data for the European Union countries and panel data techniques are used. The empirical results suggest that social government spending is not clearly related with economic growth in most of the European countries over the period 1994-2012.