The Effects of Economic, Social and Institutional Factors on Social Expenditure Levels

The paper presents a model of the level of social expenditure in 30 European countries, namely the EU 27 states, Norway, Iceland and Switzerland. The aim is to explain the development of social expenditure levels in the period 1990-2010 and estimate it's sensitivity to basic economic, social, political and institutional determinants. Over 60 potential determinants are derived from the literature and analysed theoretically, and 21 of these variables are used as independent variables in the regression (a fixed-effects model with robust standard errors). Five variables are identifi ed as both robust and theoretically consistent. Social expenditure levels seem to depend on unemployment, GDP growth, population ageing, GDP per capita and the openness of an economy. The results confirm the theory of socio-economic determination of the level of social expenditure. Empirical evidence for other theoretical explanations is not robust, as it is strongly dependent on the exact model specification.

Keywords: fixed effects model, social expenditure level, EU member states