The main purpose of this chapter is to tackle the issue of whether or not the welfare state is responsible for the decline in economic performance. At the micro level, social protection brings distortion in the choices of contributors and of beneficiaries. Yet, the empirical evidence indicates that the cost of these distortions is rather limited. At the macro level, one cannot infer much from a negative relation between the social burden and GDP growth. Given that, we reach three conclusions. First, the welfare state is likely to have modified the preferences of individuals. Second, the decline in economic growth and pressured public finance calls for its partial retrenchment. Finally, most of the work on the effect of the welfare state on growth and employment deals with a relatively short and recent period. A longer run view might be useful.
Welfare State, quantiles, non‑linearities and economic performance: an empirical assessment