On the Damaging Side Effects of the Welfare System: How, Why and What to Do

  • Edmund S. Phelps
Part of the Central Issues in Contemporary Economic Theory and Policy book series (CICETP)


The welfare system, the system of entitlements and mandates aimed at protecting citizens from poverty, occupies a distinctive place in political economy. Most of the programs are relatively new as economic institutions go, the earlies ones having taken form only a century ago, and they have spread like wildfire, far ahead of economists’ capacity to understand the range of their costs alongside their benefits. As I see it, however, recent advances in theoretical understanding offer a warning that many welfare programs, in their present design and scale at any rate, are doing serious damage to western economies. At the same time these advances point to a reform in the tax financing of welfare programs and to further initiatives toward increased wages and employment that would serve to control the damage.


Welfare System Median Voter Unemployment Insurance Welfare Program Private Insurer 
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  1. [1]
    Phelps E.S., «The Welfare State Versus Low-Wage Employment Subsidies», American Economic Review: Paper and Proceedings, n. 84, May, 1994.Google Scholar
  2. [2]
    Phelps E.S., «A Program of Low-Wage-Employment Tax Credits», Roma, ConRndustria, CGS Ricerche, n. 93, May, 1994.Google Scholar
  3. [3]
    Phelps E.S., Structural Slumps: the Modern Equilibrium Theory of Unemployment, Interests and Assets, Harvard (Mass.), Harvard University Press, 1994.Google Scholar

Copyright information

© Servizio Italiano Pubblicazioni Internazionali Srl 1996

Authors and Affiliations

  • Edmund S. Phelps
    • 1
  1. 1.Columbia UniversityUSA

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