Growth and the Welfare State in the EU: A causality analysis

In this paper, we test for causality between GDP growth and social protecti on expenditure in the European Union. To that end, we apply Hsiao's (1981) sequential procedure to data for twelve EU countries along the 1970-1994 pe riod. Our results suggest that, for Belgium, Germany, Ireland, Luxembourg, the Netherlands, Portugal, and Spain, causality runs only from social prote ction growth to GDP growth, while for Denmark, France, Greece, Italy, and t he United Kingdom, no causality is found between social protection growth a nd GDP growth.