Does the welfare state increase welfare? Reflections on hidden negatives and observed positives

Summary

The growth of the welfare state and the taxes required to finance it has affected aggregate economic welfare through several channels. Some of the impacts are negative; others are positive. This paper appraises the evidence on the magnitude of a dozen of these impacts, and concludes that for both the Netherlands and the U.S., aggregate gains exceed the losses. At the margin, however, the comparison is not so favorable and a strategy is suggested whereby the welfare state could be reoriented so as to preserve the gains while reducing the losses. This strategy is an alternative to simple retrenchment of the welfare state.