Economic resilience of welfare states in the European Union

This bachelor’s thesis analyses the resilience and recovery of selected European Union economies during major economic shocks between 2007 and 2024. The aim of the thesis is to evaluate the economic resilience of so-called welfare states within the European Union in relation to other countries and to identify the factors that influence it most strongly. The research is based on panel regression analysis using fixed effects. The dependent variables are constructed as changes in the deviations of logged variables from their long-term level, which makes it possible to capture a more dynamic dimension of economic resilience. In addition to aggregate social expenditure, the supplementary specification also analyses expenditure on active labour market policies per capita (ALMP), which better captures targeted stabilisation measures in the labour market. The models are specified using robust standard errors clustered at the country level. The results of the main model show that, when controlling for social expenditure, the tax quota is associated with a less favourable change in economic resilience, while social expenditure shows a positive and statistically significant relationship. It is therefore appropriate to distinguish between the revenue and expenditure sides of public finances. The control specifications also indicate that the main fiscal relationships remain preserved. The specification with crisis dummy variables confirms the persistence of the main fiscal relationships and, at the same time, substantially reduces residual autocorrelation. The labour market model shows that a more favourable change in unemployment is associated mainly with economic sentiment, investment per capita and expenditure on active labour market policies per capita. The results therefore suggest that economic resilience is determined not only by the size of the public sector, but also by the structure and targeting of individual economic policy instruments. This implies a recommendation to support effective social expenditure, investment activity, labour productivity and targeted active labour market policy measures.