Hostname: page-component-78c5997874-xbtfd Total loading time: 0 Render date: 2024-11-09T06:16:10.116Z Has data issue: false hasContentIssue false

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 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Alesina, A. Ardagna, S. (1998) Tales of Fiscal Adjustments – Why They Can Be Expansionary. Economic Policy 13(27): 488545.Google Scholar
Alesina, A. Ardagna, S. (2010) Large Changes in Fiscal Policy: Taxes Versus Spending. Tax Policy and the Economy 24: 3568.Google Scholar
Alesina, A. Perotti, R. (1995) Fiscal Expansions and Fiscal Adjustments in OECD Countries. Economic Policy 10(21): 205248.Google Scholar
Alesina, A. Perotti, R. (1997) Fiscal Adjustments in OECD Countries: Composition and Macroeconomic Effects. IMF Staff Papers 44(2): 210248.Google Scholar
Alesina, A., Perotti, R. Tavares, J (1998) The Political Economy of Fiscal Adjustments. Brookings Papers on Economic Activity 1998(1): 197266.Google Scholar
Andreß, H.-J., Hagenaars, J. A. Kühnel, S. (1997) Analyse von Tabellen und kategorialen Daten. Berlin/Heidelberg: Springer.Google Scholar
Armingeon, K., Engler, S., Panajotis, P., Gerber, M., Leimgruber, P. (2010) Comparative Political Data Set 1960–2008. Institute of Political Science. Berne: University of Berne.Google Scholar
Armingeon, K. Giger, N. (2008) Conditional Punishment: A Comparative Analysis of the Electoral Consequences of Welfare State Retrenchment in OECD Nations, 1980–2003. West European Politics 31(3): 558580.CrossRefGoogle Scholar
Backhaus, K., Erichson, B., Plinke, W. Weiber, R. (2005) Multivariate Analysemethoden. Berlin: Springer.Google Scholar
Bollen, K. A. Jackman, R. W. (1993) Regression Diagnostics: An Expository Treatment of Outliers and Influential Cases. In Fox J. and Long J. S. (eds.), Modern Methods of Data Analysis. Newbury Park, CA: Sage, 257291.Google Scholar
Castles, F. G. (2009) What Welfare States Do: A Disaggregated Expenditure Approach. Journal of Social Policy 38(1): 4562.Google Scholar
Clasen, J. Siegel, N. A. (ed.) (2007) Investigating Welfare State Change. The, Dependent Variable Problem’ in Comparative Analysis. Cheltenham/Northampton: Edward Elgar.Google Scholar
Economist (2010) Cutting Edge. Economist 397: 84.Google Scholar
Esping-Andersen, G. (1990) The Three Worlds of Welfare Capitalism. Cambridge, MA: Polity Press.Google Scholar
Giavazzi, F. Pagano, M. (1990) Can Severe Fiscal Contractions Be Expansionary? Tales of Two Small European Countries. In Blanchard O. and Fischer S. (eds.), NBER Macroeconomics Annual 1990. Cambridge, MA: MIT Press, 75122.Google Scholar
Giavazzi, F. Pagano, M. (1996) Non-Keynesian Effects of Fiscal Policy Changes. International Evidence and the Swedish Experience. Swedish Economic Policy Review 3: 67103.Google Scholar
Giger, N. Nelson, M. (2011) The Electoral Consequences of Welfare State Retrenchment: Blame Avoidance or Credit Claiming in the Era of Permanent Austerity? European Journal of Political Research 50(1): 123.CrossRefGoogle Scholar
Green-Pedersen, C. (2004) The Dependent Variable Problem Within the Study of Welfare State Retrenchment: Defining the Problem and Looking for Solutions. Journal of Comparative Policy Analysis 6(1): 314.Google Scholar
Guichard, S. K., Kennedy, M., Wurzel, E., André, C. (2007) What Promotes Fiscal Consolidation. OECD Economics Department Working Papers 533. Paris: OECD.Google Scholar
Heylen, F. Everaert, G. (2000) Success and Failure of Fiscal Consolidations in the OECD: A Multivariate Analysis. Public Choice 105(1–2): 103124.Google Scholar
Hosmer, D. Lemeshow, S. (2000) Applied Logistic Regression. New York, NY: Wiley.CrossRefGoogle Scholar
Jensen, C. (2011) Less Bad than its Reputation: Social Spending as a Proxy for Welfare Effort in Cross-National Studies. Journal of Comparative Policy Analysis 13(3): 327340.Google Scholar
Jensen, C. (2012) Labour-Market- vs. Life-Course-Related Social Policies: Understanding Cross-Programme Differences. Journal of European Public Policy 19(2): 275291.CrossRefGoogle Scholar
Korpi, W. (1980) Social Policy and Distributional Conflict in the Capitalist Democracies. West European Politics 3(3): 296316.CrossRefGoogle Scholar
Korpi, W. Palme, J. (2008) The Social Citizenship Indicator Program (SCIP). Stockholm: Swedish Institute for Social Research, Stockholm University.Google Scholar
Krugman, P. (2010) Alesina On Stimulus, New York Times, Opinion Pages. http://krugman.blogs.nytimes.com/2010/02/06/alesina-on-stimulus/?_r=0 (accessed 18 October 2013).Google Scholar
Lassen, D. D. (2010) Fiscal Consolidations in Advanced Industrialized Democracies: Economics, Politics, and Governance. Stockholm: Finanspolitiska rådet.Google Scholar
Leigh, D., Devries, P., Freedman, C., Guajardo, J., Laxton, D. Pescatori, A. (2010) Will it Hurt? Macroeconomic Effects of Fiscal Consolidation. In IMF (ed.), IMF World Economic Outlook October 2010: Recovery, Risk, and Rebalancing. Washington, DC: IMF, 93124.Google Scholar
McDermott, C. J., Wescott, R. F. (1996) An Empirical Analysis of Fiscal Adjustments. Staff Papers – International Monetary Fund 43(4): 725753.Google Scholar
Mulas-Granados, C. (2004) Voting against Spending Cuts: The Electoral Cost of Fiscal Adjustments in Europe. European Union Politics 5(4): 467493.CrossRefGoogle Scholar
Mulas-Granados, C. (2006) Economics, Politics and Budgets. The Political Economy of Fiscal Consolidations in Europe. Houndmills/Basingstoke: Palgrave MacMillan.Google Scholar
Organisation for Economic Co-Operation and Development (OECD) (2009) Economic Outlook No. 86. Paris: Organisation for Economic Co-Operation and Development.Google Scholar
Perotti, R. (1997) Fiscal Consolidation in Europe: Composition Matters. American Economic Review 86(2): 105110.Google Scholar
Perotti, R., Strauch, R. von Hagen, J. (1998) Sustainable Public Finances. London: CEPR Discussion Paper.Google Scholar
Pierson, P. (2001) Introduction. Investigating the Welfare State at Century's End. In Pierson P. (ed.), The New Politics of the Welfare State. Oxford, NY: Oxford University Press, 114.Google Scholar
Sachverständigenrat (2003) Staatsfinanzen konsolidieren – Steuersystem reformieren. Jahresgutachten 2003/04. Wiesbaden: Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung/Statistisches Bundesamt.Google Scholar
Sapir, A. (2006) Globalization and the Reform of European Social Models. Journal of Common Market Studies 44(2): 369390.Google Scholar
Scruggs, L. (2004) Welfare State Entitlements Data Set: A Comparative Institutional Analysis of Eighteen Welfare States.Google Scholar
Scruggs, L. Allan, J. P. (2006) Welfare-State Decommodification in 18 Countries: A Replication and Revision. Journal of European Public Policy 16(1): 5572.Google Scholar
Tabachnik, B. G. Fidell, L. S. (2007) Using Multivariate Statistics. Boston, MA: Pearson.Google Scholar
Tavares, J. (2004) Does Right or Left Matter? Cabinets, Credibility and Fiscal Adjustments. Journal of Public Economics 88(12): 24472468.Google Scholar
Vis, B. (2009) Governments and Unpopular Social Policy Reform: Biting the Bullet or Steering Clear? European Journal of Political Research 48(1): 3157.Google Scholar
von Hagen, J. Strauch, R. (2001) Fiscal Consolidations: Quality, Economic Conditions, and Success. Public Choice 109(3–4): 327346.Google Scholar
Wagschal, U. Wenzelburger, G. (2008a) Roads to Success: Budget Consolidations in OECD Countries. Journal of Public Policy 28(3): 309339.Google Scholar
Wagschal, U. Wenzelburger, G. (2008b) Successful Budget Consolidation. An International Comparison. Gütersloh: Verlag Bertelsmann Stiftung.Google Scholar
Wenzelburger, G. (2009) The Analysis of Budget Consolidations. Concepts, Research Designs and Measurement. Journal of Economic and Social Measurement 34(4): 269291.Google Scholar
Wenzelburger, G. (2011) Political Strategies and Fiscal Retrenchment: Evidence from Four Countries. West European Politics 34(6): 11511184.Google Scholar
Zaghini, A. (2001) Fiscal Adjustments and Economic Performance: A Comparative Study. Applied Economics 33: 613624.Google Scholar
Zohlnhöfer, R., Wolf, F. Wenzelburger, G. (2013) Political Parties and Pension Generosity in Times of Permanent Austerity. World Political Science Review 9(1): 291318.CrossRefGoogle Scholar
Supplementary material: PDF

Wenzelburger Supplementary Material

Appendix Tables

Download Wenzelburger Supplementary Material(PDF)
PDF 191.7 KB