Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 662: The Welfare State -- Background, Achievements, Problems

Assar Lindbeck ()
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Assar Lindbeck: The Research Institute of Industrial Economics, Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden

Abstract: This paper starts out with a brief discussion of the historical background, the justifications and the political forces behind the built up of the modern welfare state. It also summarizes its major achievements in terms of economic efficiency and redistribution. The paper also tries to identify some major problems of contemporary welfare-state arrangements, differentiating exogenous shocks from endogenous behaviour adjustments by individuals to the welfare state itself. The latter include tax distortions, moral hazard, and endogenous changes in social norms concerning work and benefit dependency.

Keywords: Justifications for Welfare State; Incentive Problems; Moral Hazard; Social Norms

JEL-codes: H40; H53; H55; J22

20 pages, February 27, 2006

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