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The Welfare State in EuropeEconomic and Social Perspectives$
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Pierre Pestieau and Mathieu Lefebvre

Print publication date: 2018

Print ISBN-13: 9780198817055

Published to Oxford Scholarship Online: September 2018

DOI: 10.1093/oso/9780198817055.001.0001

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Welfare State and Economic Efficiency

Welfare State and Economic Efficiency

Chapter:
(p.78) 7 Welfare State and Economic Efficiency
Source:
The Welfare State in Europe
Author(s):

Pierre Pestieau

Mathieu Lefebvre

Publisher:
Oxford University Press
DOI:10.1093/oso/9780198817055.003.0007

The main purpose of this chapter is to tackle the issue of whether or not the welfare state is responsible for the decline in economic performance. At the micro level, social protection brings distortion in the choices of contributors and of beneficiaries. Yet, the empirical evidence indicates that the cost of these distortions is rather limited. At the macro level, one cannot infer much from a negative relation between the social burden and GDP growth. Given that, we reach three conclusions. First, the welfare state is likely to have modified the preferences of individuals. Second, the decline in economic growth and pressured public finance calls for its partial retrenchment. Finally, most of the work on the effect of the welfare state on growth and employment deals with a relatively short and recent period. A longer run view might be useful.

Keywords:   consumer’s surplus, corporatist economy, deadweight-loss, distortionary tax, excess burden, lump-sum tax

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