The Lisbon Process in the European Union: Lessons for Croatia The difference between the EU and the US economies concerns not only regulations and institutions but also the role of government in the economy. In the most general way, the government's role in the economy is described by indices showing public spending values in relation to GDP, and by the structure of this spending. The data presented in Table 1 show that the difference in the levels of public spending in the EU and the US amounted to almost 13% of GDP. Over 12.2% of this was due to much higher spending by the EU on income transfers, 6.87 percentage points, and higher spending on public consumption, 5.33 percentage points. An additional percentage point, which practically closes the entire public spending gap, comes from subsidies, which were higher in the EU than in the US. What is more, a specific feature of the difference in the structure of public expenditure in the EU and the US was that the only item in 2000 on which the EU spent less than the US in relation to its GDP was public investment outlays. In addition, the structure of spending in EU countries in 1963 was very similar to that of the United States in 2000(see Figure 2). In this context, what is worthy of note is that, in the 1960s, the EU countries developed faster than the United States. A continuous increase in income transfers and public consumption spending, which can be observed in European countries since the 1960s, was connected to the creation of the welfare state. It was based on extensive social aid and a far-reaching public redistribution of income. These processes had, however, a very severe impact on labour markets. Growing access to income other than wages, measured by the value of income transfers, resulted in growing unemployment underpinned by a lack of incentives for looking for a job. Therefore, the unemployment rate since the beginning of 1970s grew at the same pace as income transfers, as shown in Figure 3. transfery dochodowe (%PKB) : stopa bezrobocia unemploy st m o e p n a t r b a e t z e robocia Figure 3. Unemployment and income transfers in the EU15(1970-2000) 25% 11% 1997 20% 9% 15% 7% 10% 5% 5% 3% 0% 1970 1980 1990 2000 1% 13% 15% 17% 19% 21% 23% Source: Author's calculat l i a o ta n using: OECD, 2003a transfery dochodowe(%PKB) income transfers(%GDP) 81