Does a “protective state” conflict with the search for adequate potential growth?

There is strong demand in some countries for a “protective” state, where the government prevents the income losses caused by economic shocks and provides generous healthcare and pension systems. The question is whether a protective state leads to low potential growth due to the high tax burden required to finance social welfare, potentially discouraging investment and employment. On the other hand, it could also be argued that a protective state enables economic agents to take more risks (with their financial investments; by innovating and creating companies), which is positive for long-term growth. This leads us to compare across OECD countries the size of social welfare policies (healthcare, pensions, families, housing, labour market) on the one hand and the tax burden (total and on companies), the employment rate and productivity growth on the other. We see that generous social welfare is associated with: A high tax burden ; A low employment rate; Relatively weak productivity gains. The negative causality appears to be the dominant mechanism .