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Why the Welfare State Looks Like a Free Lunch

UC Davis Economics Department Working Paper No. 02-7

59 Pages Posted: 27 Feb 2003  

Peter H. Lindert

University of California, Davis - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: November 2002

Abstract

The econometric consensus on the effects of social spending confirms a puzzle we confront in the raw data: There is no clear net GDP cost of high tax-based social spending on GDP, despite a tradition of assuming that such costs are large. This paper offers five keys to this free lunch puzzle. First, it shows conventional analysis imagines costly forms of the welfare state that no welfare states have ever practiced. Second, better tests confirm that the usual tales imagine costs that would be felt only if policy had strayed out of sample, away from any actual historical experience. Third, the tax strategies of high-budget welfare states are more pro-growth and less progressive than has been realized, and more so than in free-market OECD countries. Fourth, the work disincentives of social transfers are so designed as to shield GDP from much reduction if any. Finally, we return to some positive growth and well-being benefits of the high welfare budgets, and then pose theoretical reasons why democracy may exert a crude form of cost control.

JEL Classification: H20, H53, I38, N40

Suggested Citation

Lindert, Peter H., Why the Welfare State Looks Like a Free Lunch (November 2002). UC Davis Economics Department Working Paper No. 02-7. Available at SSRN: https://ssrn.com/abstract=372842 or http://dx.doi.org/10.2139/ssrn.372842

Peter H. Lindert (Contact Author)

University of California, Davis - Department of Economics ( email )

One Shields Ave
Davis, CA 95616
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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