Cost-Shifting in Multitiered Welfare States: Responding to Rising Welfare Dependency in Germany and Switzerland

Abstract

In this paper, we analyze if and how different levels of government offload clients onto other welfare state programmes that are not under their financial responsibility, focusing particularly on municipally-led social assistance schemes, the safety net of last resort. We start from the hypothesis that the extent to which cost shifting takes place in a multitiered welfare state depends on the degree of fiscal centralization, and we expect cost shifting to be more prevalent in federal countries were the constituent units have strong fiscal autonomy. In order to empirically examine this claim, we compare Germany and Switzerland, two federal countries that differ considerably in matters of fiscal centralisation. Empirically, we find that in fact cost-shifting occurred irrespective of the degree of fiscal centralisation. However, there are differences in how the two countries reacted to cost-shifting practices. Fiscally centralised Germany has been more successful in limiting cost shifting practices than decentralised Switzerland. By connecting the literature on social policy and fiscal federalism, the paper contributes to a broader understanding of the functioning of multitiered welfare states.

Keywords: Cost-shifting, Social policy, Social assistance, Federalism