Economic Growth and Budget Composition: The Influence of Social Protection Spending in CEE Economies

Abstract

This paper examines the relationship between the structure of budgetary spending and economic growth, with a particular focus on allocations for social protection in Central and Eastern European countries (CEE). Due to the lack of consensus in the academic literature regarding the direct and indirect economic effects of social protection, this study employs the Autoregressive Distributed Lag (ARDL) model to analyze data from 11 CEE countries over the period 2000–2022. The results indicate that, in both the short and the long run, social protection spending has a statistically significant positive
impact on GDP. The key transmission channels include increased aggregate demand, reduced income inequality and enhanced productivity through more substantial investments in human capital. The findings further suggest that, in the specific context of transitional economies facing demographic challenges, social transfers primarily acted as stabilizing mechanisms. Given the limited number of studies examining the functional composition of public expenditure in post-transition European economies, this research offers new empirical insights into the role of social spending in growth strategies. The policy recommendations emphasize the importance of maintaining sustainable public finances while promoting productive social protection systems aligned with
labor market dynamics.