Designing a growth-friendly welfare system: Implications from empirical analysis of OECD countries

Yoo-Duk Kang

International Review of Public Administration, 2016, vol. 21, issue 2, 104-124

Abstract: This article revisits arguments on relationship between welfare spending and economic growth and proposes a direction for welfare policy environment which can actually contribute to economic growth. Many studies have pointed out government size or welfare spending is negatively correlated to economic growth. Against this background, this article conducts empirical tests on welfare spending of 34 OECD countries for the period of 1996–2010. It shows that the impact of welfare spending on economic growth rate varies depending on its characteristics. Besides, countries with higher education and R&D spending and good governance display high economic growth rate despite large welfare spending. This finding suggests that welfare policy should be oriented in favor of investing in human capital and productivity and institutional reforms are important for the sustainability of welfare state.

Date: 2016
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DOI: 10.1080/12294659.2016.1186455

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