Comparative Cause and Effect: Consumer Insolvency and the Eroding Social Safety Net

Abstract:     
This paper explores the connection between social welfare reform and the adoption of consumer debt relief law in Europe. Health care expenses and unemployment are significant contributors to overindebtedness in Europe, and outside the primary sources, one finds suggestions to the effect that the unraveling social safety net was a major contributing factor in the adoption of consumer debt relief laws in Europe in the 1990s. This paper critically analyzes this notion by tracking the recent scaling back of social assistance programs in Sweden, Germany, and France, and comparing that movement with the adoption of consumer insolvency regimes in those three countries. The temporal correlation seems to be quite weak, and closer examination of the individual social welfare regimes reveals latent weaknesses that were amplified by changes in consumer economic factors in the 1980s. Rather than an eroding social safety net causing the adoption of consumer bankruptcy law, other powerful variables seem to have driven both of these reform processes. In countries with both strong and weak safety nets, consumer insolvency law has become the treatment of choice for new financial risks confronting consumers in the 21st century.

Keywords: welfare, welfare reform, social safety net, consumer bankruptcy, insolvency

Accepted Paper Series