Why the Welfare State Looks Like a Free Lunch

56 Pages Posted: 29 Jul 2003

See all articles by Peter H. Lindert

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: July 2003

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. The paper offers five keys to this free lunch puzzle. First, the costly forms of transfers usually imagined have not been practiced by real-world welfare states. Second, better tests confirm that the usually imagined costs 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. 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 social transfers, and suggest how democratic cost control relates to budget size.

Suggested Citation

Lindert, Peter H., Why the Welfare State Looks Like a Free Lunch (July 2003). NBER Working Paper No. w9869. Available at SSRN: https://ssrn.com/abstract=428363

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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