Does a generous welfare state crowd out student effort? Panel data evidence from international student tests

Student achievement has been identified as an important contributor to economic growth. This paper investigates the hypothesis that redistributive government activities have a negative effect on investment in human capital using data from international comparative student achievement tests in Mathematics and Science for over 70 countries during the period 1980 to 2003. In fixed effects models, the impact on student achievement of both government consumption and government social expenditures are negative and seem to be robust across different model specifications. The effect of social expenditures appears to be driven by spending on pensions and active labor market policies.