ABSTRACT
In an era of ‘permanent austerity’ (Pierson, 2001) and financial crisis, the issue of financing welfare state provisions is topical. Moreover, the future of welfare state funding in countries with ageing populations is no doubt raising increasing interest in scholarly as well as policy circles. Yet the financing side of welfare provision has traditionally been given little attention and remains somewhat of a black box of the welfare state. The fact that some of the financing mechanisms have remained ‘hidden’ has added to the confusion about existing policy alternatives. In developed countries, the demands on welfare state financing have been driven by the fact that,
on average, gross public social expenditure across Organisation for Economic Co-operation and Development (OECD) countries has increased from 7 per cent in 1960 to 19 per cent in 2007 (SOCX, 2011). In the European Union (EU), this figure reaches as much as 26 per cent of gross domestic product (GDP) (Eurostat, 2011). As such, the financing of social policy is a highly salient economic and political issue, marked by continued conflicts regarding to what extent and in what ways social policies should be financed and how the cost should be distributed. The financing and institutional mechanisms that have been put in place for the extraction of resources and their redistribution thus provides a direct insight into the different kinds of social contracts that underpin each and every welfare state, reflecting different conceptions of solidarity and different redistributive ambitions (Sjöberg, 2000). The different financing mechanisms that support social protection systems not only have an impact
on the redistributive outcomes of social policy, but also on the political legitimacy of social systems and social benefits and therefore on the willingness to pay. They also have an impact on the economy, not least in the way it affects the cost of labour but also, potentially, economic growth and competitiveness. The question of the economic impact and financial sustainability of the different modes of financing social policy has increasingly come to the fore since the 1980s, and even more so now in a context of increased economic globalisation and of financial crisis. Despite the crucial economic, political and social issues that are involved, the sociological and political scholarship on the financing of the welfare state remains surprisingly underdeveloped, even if there now seems to be a renewed interest in the field of fiscal sociology, including in relation to the welfare state (see Howard, 1997; Swank and Steinmo, 2002; Campbell, 2009; Manow, 2010; Béland, 2011).
