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Why Does the Welfare State Grow?
Speech, CEPOS Tax Conference, 12.VI.2006
Peter Kurrild-Klitgaard
Dept. of Political Science, University of Copenhagen
Debunking some myths about why the
welfare state grows
The growth of the welfare state is
• not ”inevitable”, ”automatic” …
• not ”the will of the people” …
Rather …
”Giving money and power to politicians is like giving whisky
and car keys to teenage boys.”
P.J. O‘Rourke, Parliament of Whores (1991)
Combinations of self-interest  government
growth
The Danish ”tax burden”, 1971-2005
53
Taxes, pct. of GDP
51
49
47
45
43
41
39
1970
1975
1980
1985
1990
1995
2000
Year
Total taxes, pct. of GDP
Sources: Finansministeriet, maj 2006.
Linear trend line
2005
Changes in the burden of public dependency,
1970-2006
1970
Number of private employees (1,000
persons)
2001
2006*
Change
19702006
Change,
1970-2006
(%)
2,058
1,919
1,906
-152
-7.4%
Number of public employees (1,000
persons)
405
824
833
+428
+105.7%
Number of recipients of transfer incomes
(1,000 persons)
918
1,742
1,834
+916
+99.8%
Total no. of persons dependent on the
public sector (1,000 persons)
1,323
2,566
2,667
+1,344
+101.6%
Number of adults (+15 years) (1,000
persons)
3,757
4,356
4,408
+651
+17.3%
35,2%
58,9%
60,5%
+25,3 %pt.
+71.9%
1.56
0.75
0.71
Share of adults dependent on the public
sector (%)
Ratio, private employees/number of
adults dependent of the public sector
Sources: Økonomisk Redegørelse, august 2005; Finansministeriet; Danmarks Statistisk; CEPOS (CEPOS 2005).
* August 2005 projections.
Specific reasons for continued welfare state
growth
Two particularly important reasons for growth of the Danish
welfare state in recent decades:
1. Structural reasons: Many welfare expenditures are
”locked-in” and may increase even without political
decisions.
2. The ”asymmetric” nature of costs and benefits: It is more
popular to increase government spending where benefits
are relatively concentrated than to lower taxes in general.

The ”ratchet effect”: Government spending tends (in practice)
only to go one way: Up …!
Survey of Danish voters’ preferences regarding
personal taxes/government benefits
Higher taxes for
yourself
Lower taxes for
yourself
Less
government
benefits for
yourself
”welfare-altruists”
”valueliberals/conservatives”
More
government
benefits for
yourself
”value-socialists”
”welfare-opportunists”
Survey of Danish voters’ preferences regarding
personal taxes/government benefits
Higher taxes for
yourself
Lower taxes for
yourself
Less
government
benefits for
yourself
”welfare-altruists”
”valueliberals/conservatives”
More
government
benefits for
yourself
”value-socialists”
1.3%
”welfare-opportunists”
Sources: Catinét Research, January 2006 / CEPOS / Peter Kurrild-Klitgaard.
Survey of Danish voters’ preferences regarding
personal taxes/government benefits
Higher taxes for
yourself
Lower taxes for
yourself
Less
government
benefits for
yourself
”welfare-altruists”
”valueliberals/conservatives”
More
government
benefits for
yourself
”value-socialists”
1.3%
7.3%
”welfare-opportunists”
29.1%
Sources: Catinét Research, January 2006 / CEPOS / Peter Kurrild-Klitgaard.
Survey of Danish voters’ preferences regarding
personal taxes/government benefits
Higher taxes for
yourself
Lower taxes for
yourself
Less
government
benefits for
yourself
”welfare-altruists”
”valueliberals/conservatives”
More
government
benefits for
yourself
”value-socialists”
”welfare-opportunists”
29.1%
44.8%
1.3%
7.3%
Sources: Catinét Research, January 2006 / CEPOS / Peter Kurrild-Klitgaard.
Perspectives
•
•
•
Danish voters prefer lower taxes (50%) to higher taxes
(31%).
But they even more so prefer higher benefits (75%) to
lower benefits (9%).
If the seemingly unstoppable government growth is to be
stopped, the ”tax freeze” is insufficient:
•
•
Spending must be controlled, not just taxes; e.g., limits on
automatic growth.
Asymmetric nature of tax/spending preferences must be
changed, e.g., by making the social costs of taxes more visible.