Relationship of social protection expenditures and socio-economic indicators: A panel data analysis of the EU countries

Abstract

Systems of social protection and approaches in tackling social risks differ by the degree of redistribution and by its generosity. The cur-rent issue in developed countries is finding the optimal relationship between economic and social policy. Therefore, the selected areas of social policy and economic development from a narrow perspective are subjected to the research investigation. To address the issue, the paper aims to analyse the association between social protection expenditures and the selected socio-economic indicators. In line with the aim, four hypotheses have been verified. H1: There is a positive relationship between social protection expenditures and indicators of socio-economic development. H2: There is a positive relationship between social protection expenditures and indicators of unemployment. H3: There is a negative relationship between social protection expenditures and indicators of income inequality. H4: There is a negative relationship between social protection expenditures and indicators of poverty. The panel data regression for the sample of the 27 EU countries in the period 2007-2015 was applied to test the hypotheses. The results of the final fixed effect model with robust coefficients revealed a positive relationship between Human development index and unemployment rate on the one side and social protection expenditures on the other. On the contrary, a negative relationship was identified between social protection expenditures on the one side and poverty rate for the elderly 65+ and income inequality (measured through Gini coefficient) on the other. These findings confirm the fact that the amount of social protection spending is reflected in the socio-economic development of the EU countries. © 2020, Economic Laboratory for Transition Research. All rights reserved.