Agata Szymańska

University of Lodz, Lodz, Poland

E-mail: agata.szymanska@uni.lodz.pl

ORCID 0000-0001-5184-931X 

Estimating the relationship between dependency ratio and social protection expenditure

Abstract. This study presents a comprehensive analysis of the relationship between the share of the dependent population in the working-age population and social protection expenditure. The analysis is conducted for a panel consisting of 25 European Union (EU) countries. Dependency ratios were used as the main determinants of social protection expenditures. The conducted pre-estimation tests examined cross-sectional dependence, slope heterogeneity, unit roots, and cointegration. The econometric approach was then used to estimate long-run elasticities. The effects were controlled using augmented mean group (AMG) and common correlated effects mean group (CCEMG) estimators, with robustness checks also performed. The findings demonstrate that population ageing, as proxied by the old-age dependency ratio, substantially affects social protection expenditure in EU economies. The key policy implication is that social support expenditures are more closely linked to the older adults than to the younger population, which highlights the need for targeted reforms and enhanced care for older adults in society. The research offers valuable insights into one of the most critical issues for the EU-namely, the strong trend of aging populations, the rise in social expenditures, and their long-run interconnections. 

Received: May, 2024

1st Revision: December, 2024

Accepted: May, 2025

DOI: 10.14254/2071-789X.2025/18-2/8

JEL Classification: C23, H50, H53, J11

Keywords: social protection expenditure, population ageing, dependency ratio, long-run elasticities