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Fact or fiction? Welfare cuts and fiscal adjustments

Published online by Cambridge University Press:  31 October 2013

Georg Wenzelburger*
Affiliation:
Seminar für Wissenschaftliche Politik, Albert-Ludwigs-Universität Freiburg, Werthmannstr, Freiburg im Breisgau, Germany

Abstract

Governments in the industrialised western democracies have repeatedly been advised to curb the welfare state when adjusting public finances in order to stabilise public debt in the long run and to create economic growth. This recommendation has been founded on a vast body of research on fiscal adjustments, which has come to the conclusion that cutting social expenditures leads to expansionary and more sustainable budget consolidations. This paper adds to the existing literature suggesting a more nuanced view, which challenges the simplicity of the “cutting-welfare” advice: first, we find that whereas less social spending is indeed associated with expansionary and successful adjustments, this is not the case for overall welfare state generosity. Second, disaggregating the welfare state in its components reveals that a reduction of pension generosity is indeed related to successful adjustments whereas reducing unemployment generosity does not seem to play a major role.

Type
Research Article
Copyright
Copyright © Cambridge University Press 2013 

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