Why Does the Welfare State Grow? Speech, CEPOS Tax Conference, 12.VI.2006 Peter Kurrild-Klitgaard...
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Why Does the Welfare State Grow? Speech, CEPOS Tax Conference, 12.VI.2006 Peter Kurrild-Klitgaard Dept. of Political Science, University of Copenhagen
Transcript of Why Does the Welfare State Grow? Speech, CEPOS Tax Conference, 12.VI.2006 Peter Kurrild-Klitgaard...
Why Does the Welfare State Grow?
Speech, CEPOS Tax Conference, 12.VI.2006
Peter Kurrild-KlitgaardDept. of Political Science, University of Copenhagen
Debunking some myths about why the welfare state grows
The growth of the welfare state is• not ”inevitable”, ”automatic” …• not ”the will of the people” …
Rather …
”Giving money and power to politicians is like giving whisky and car keys to teenage boys.”
P.J. O‘Rourke, Parliament of Whores (1991)
Combinations of self-interest government growth
The Danish ”tax burden”, 1971-2005
39
41
43
45
47
49
51
53
1970 1975 1980 1985 1990 1995 2000 2005
Year
Taxes,
pct.
of
GD
P
Total taxes, pct. of GDP Linear trend line
Sources: Finansministeriet, maj 2006.
Changes in the burden of public dependency, 1970-2006
1970 2001 2006* Change 1970-2006
Change, 1970-2006
(%)
Number of private employees (1,000 persons)
2,058 1,919 1,906 -152 -7.4%
Number of public employees (1,000 persons)
405 824 833 +428 +105.7%
Number of recipients of transfer incomes (1,000 persons)
918 1,742 1,834 +916 +99.8%
Total no. of persons dependent on the public sector (1,000 persons)
1,323 2,566 2,667 +1,344 +101.6%
Number of adults (+15 years) (1,000 persons)
3,757 4,356 4,408 +651 +17.3%
Share of adults dependent on the public sector (%)
35,2% 58,9% 60,5% +25,3 %-pt.
+71.9%
Ratio, private employees/number of adults dependent of the public sector
1.56 0.75 0.71
Sources: Økonomisk Redegørelse, august 2005; Finansministeriet; Danmarks Statistisk; CEPOS (CEPOS 2005).* August 2005 projections.
Specific reasons for continued welfare state growth
Two particularly important reasons for growth of the Danish welfare state in recent decades:
1. Structural reasons: Many welfare expenditures are ”locked-in” and may increase even without political decisions.
2. The ”asymmetric” nature of costs and benefits: It is more popular to increase government spending where benefits are relatively concentrated than to lower taxes in general.
The ”ratchet effect”: Government spending tends (in practice)
only to go one way: Up …!
Survey of Danish voters’ preferences regarding personal taxes/government benefits
Higher taxes for yourself
Lower taxes for yourself
Less government benefits for yourself
”welfare-altruists” ”value-liberals/conservatives”
More government benefits for yourself
”value-socialists” ”welfare-opportunists”
Survey of Danish voters’ preferences regarding personal taxes/government benefits
Higher taxes for yourself
Lower taxes for yourself
Less government benefits for yourself
”welfare-altruists”
1.3%”value-liberals/conservatives”
More government benefits for yourself
”value-socialists” ”welfare-opportunists”
Sources: Catinét Research, January 2006 / CEPOS / Peter Kurrild-Klitgaard.
Survey of Danish voters’ preferences regarding personal taxes/government benefits
Higher taxes for yourself
Lower taxes for yourself
Less government benefits for yourself
”welfare-altruists”
1.3%”value-liberals/conservatives”
7.3%
More government benefits for yourself
”value-socialists”
29.1%”welfare-opportunists”
Sources: Catinét Research, January 2006 / CEPOS / Peter Kurrild-Klitgaard.
Survey of Danish voters’ preferences regarding personal taxes/government benefits
Higher taxes for yourself
Lower taxes for yourself
Less government benefits for yourself
”welfare-altruists”
1.3%”value-liberals/conservatives”
7.3%
More government benefits for yourself
”value-socialists”
29.1%”welfare-opportunists”
44.8%
Sources: Catinét Research, January 2006 / CEPOS / Peter Kurrild-Klitgaard.
Perspectives
• Danish voters prefer lower taxes (50%) to higher taxes (31%).
• But they even more so prefer higher benefits (75%) to lower benefits (9%).
• If the seemingly unstoppable government growth is to be stopped, the ”tax freeze” is insufficient:
• Spending must be controlled, not just taxes; e.g., limits on automatic growth.
• Asymmetric nature of tax/spending preferences must be changed, e.g., by making the social costs of taxes more visible.
