@techreport{Fic2004Welfare,
abstract = {Can a growing welfare state induce a regime switch in the growth rate of an economy?
This paper constructs a dynamic political economy model of economic growth
and the welfare state in which both variables are non-linearly related and jointly endogenous.
Using a Markov switching framework over the period 1950-2001, we find
that the structural decline in growth rates that several welfare state economies experienced
during 1970-1975 are preceded by movements to a high welfare state regime.
This suggests that expanding welfare state regimes are associated with low economic
growth regimes, while contracting welfare state regimes are associated with high growth
regimes. However, we also find that the structural decline in growth rates leads to a
downward structural break in the welfare state for many welfare state economies. This
suggests that declining growth regimes are associated with contracting welfare state
regimes, as lower growth forces politicians to cut the size of the welfare state. We also
report strong evidence that both expansion and contractions in the welfare state affects
growth non-linearly. These results are able to characterize a predictable and general
pattern of welfare state?growth evolution.},
address = {Berlin},
author = {Tatiana Fic and Chetan Ghate},
copyright = {http://www.econstor.eu/dspace/Nutzungsbedingungen},
keywords = {C22; E62; O40; P16; 330; Welfare State; Structural Change; Regime Switching Models; Positive Political Economy; Endogenous Growth; Sozialstaat; Wirtschaftswachstum; Staatsquote; Neue Wachstumstheorie; Public Choice; Sch\"{a}tzung; Theorie; OECD-Staaten; regime switching model},
language = {eng},
number = {424},
publisher = {Deutsches Institut f\"{u}r Wirtschaftsforschung (DIW)},
title = {The Welfare State, Thresholds, and Economic Growth},
type = {DIW-Diskussionspapiere},
url = {http://hdl.handle.net/10419/18161},
year = {2004}
}
