The Economic Consequences of Rolling Back the Welfare State

From Munich Lectures in Economics

The Economic Consequences of Rolling Back the Welfare State

By Anthony B. Atkinson





In recent years the welfare state has come under attack from economists, and in many OECD countries there have been calls for spending on the welfare state to be rolled back. Critics argue that the size of transfer programs is responsible for a decline in economic performance and that cuts in spending are a prerequisite for a return to the golden age of full employment and economic growth. A. B. Atkinson takes such criticisms seriously, placing them under empirical and analytical scrutiny. Atkinson brings a welcome sense of balance to the debate. He warns that many currently fashionable policy proposals to roll back the welfare state could have unintended negative side effects, based as they are on an oversimplified view of the workings of the economy and of how welfare arrangements affect economic incentives. He asks whether there are ways in which the welfare state plays a positive role in the modernization of the economy. He develops new models of the labor market and of the growth of the corporate economy, which provide insight into the role and consequences of unemployment insurance, and the implications of moves to private pension funds. Atkinson does not attempt to determine whether or not spending should be cut. Rather, his aim is to clarify the nature of the charges leveled against the welfare state, so that readers can make up their own minds. Copublished with the Center for Economic Studies and the Ifo Institute


$38.00 X ISBN: 9780262011716 228 pp. | 5.6 in x 8.1 in


  • Economists and politicians of previous generations may have underestimated the costs of the welfare state, but the present generation stands in danger of underestimating its benefits. This excellent book shows how much economic analysis can help to establish a balanced view.

    Agnar Sandmo

    Professor of Economics, Norwegian School of Economics and Business Administration

  • This is a most timely and valuable contribution to the ongoing debate on the welfare state. In much of this debate it is taken for granted that generous unemployment compensation and social security has a negative impact on economic performance. Tony Atkinson shows that this conclusion may be wrong once we consider the institutional details of real-world welfare state programs and the realistic alternatives to existing programs. His book is a plea to fellow economists for a more balanced approach to the economic analysis of the welfare state and a warning that, if we simply roll it back, we may end up throwing out the baby with the bath water.

    Peter Birch Sorensen

    Director of Economic Policy Research Unit, University of Copenhagen

  • This is altogether a far-reaching book with penetrating analysisand elegant and forceful reasoning.

    Amartya Sen

    Master, Trinity College, Cambridge, UK, and Lamont University Professor Emeritus, Harvard University, 1998 Nobel Laureate in Economics.