Social Expenditure in the EU Countries – Differences, Determinants, and Challenges

Talk by Agata Szymanska (Łódź) as part of the Research Seminar Series of the IOS Economics Department.

The recent socio-economic structural trends, mainly including demographic changes, and economic fluctuations have affected the budget balances of many European Union countries considerably, mainly in the field related to social protection. Moreover, Europe, like the rest of the world, is becoming older and older. Demographic ageing is a problem that seriously impacts social policy and social spending. It results in the demographic processes affecting directly the fiscal policy, especially on the spending side of the budget. The presented study seeks to determine the relationships between social spending and its determinants and to identify countries experiencing different levels of their intensity, using data for 2000-2017. Special attention is paid to the effects of demography and ageing (captured by the old-age dependency ratio) and macroeconomic conditions
(especially measured by the GDP or unemployment rate). The motivation of the study is strengthened by the importance of population ageing and business cycle fluctuations for the area associated with social support. As a result, the paper estimates the effects of the economic structure of the population and the effects of economic conditions on social spending. The results show that over the last twenty years the change in social protection spending was more significantly affected by changes in economic conditions than changes in age dependency ratio. The outcomes imply that the spending may work as a social buffer preventing changes in income. It is also confirmed by data analysis indicating the increase of expenditures on social protection in the European Union in recent years.