Atlantic Economic Journal

, Volume 28, Issue 3, pp 279–294 | Cite as

The threat to the German welfare state

  • Hans-Werner Sinn
Presidential And Invited Addresses


Germany is in a dilemma. Low wage competition via product and factor markets increases the demands on the welfare state, but increased systems competition in the context of international factor mobility reduces the possibilities of maintaining it. The welfare state has important allocative functions. It is an insurance against career risks and its stimulates risk taking and economic growth. However, it also has severe moral hazard effects by reducing work incentives. To help the welfare state survive and improve its performance, this paper advocates the home-country principle for the treatment of immigrants, the introduction of funded elements in the pension system, and employment subsidies at the expense of ordinary welfare payments.


Welfare State Moral Hazard Risk Taking Pension System Factor Mobility 
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Copyright information

© International Atlantic Economic Society 2000

Authors and Affiliations

  • Hans-Werner Sinn
    • 1
  1. 1.Ludwig Maximilians Universität and CESifoGermany

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