Scandinavian Working Papers in Economics

Ratio Working Papers,
The Ratio Institute

No 101: Explaining Welfare State Survival: The Role of Economic Freedom and Globalization

Andreas Bergh ()
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Andreas Bergh: Ratio, Postal: The Ratio Institute, P.O. Box 5095, SE-102 42 Stockholm, Sweden

Abstract: Using the economic freedom index and the newly developed KOF-index of globalization, it is shown that the Scandinavian welfare states have experienced faster, bigger and more consistent increases in these areas, compared to the smaller European and the so called liberal welfare states. The market economy and globalization hence do not pose threats to these welfare states, but are instead neglected factors in explaining their survival and good economic performance. Big government decreases the economic freedom index by definition, but the welfare states compensate in other areas, such as legal structure and secure property rights.

Keywords: Welfare state; growth; property rights; globalization; taxation; economic freedom

JEL-codes: F02; H11; P48

23 pages, June 2, 2006

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