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-KlitgaardDept. of Political Science, University of Copenhagen
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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)
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Combinations of self-interest government growth
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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.
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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.
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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 …!
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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”
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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.
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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.
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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.
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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.