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Has Public Insurance Gone Too Far?

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  • Ludger Schuknecht
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    Abstract

    This study argues that insurance is a much more pervasive motive of government activity than is commonly thought; one associated with great benefits but also great risks. From the start of public social insurance in the late 19th century, social insurance has come a long way to “all-inclusive” modern welfare states that absorb, on average, 25% of GDP in industrialised countries. Moreover, governments today are expected to “insure” aggregate demand via public spending and jobs, and economic sectors – most notably the financial industry – via subsidies and bailouts. Public insurance has also spread across borders via international support programmes. All this has not only boosted government debt to historic peace-time highs, but also led to significant potential future government liabilities via social security systems and possible further national and international financial support programmes. While the distributional implications are ambivalent, the compound effects have put the sustainability of public finances and macroeconomic stability at risk in many countries. Correcting over-commitments requires ambitious and timely policy action.

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    Bibliographic Info

    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4217.

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    Date of creation: 2013
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    Handle: RePEc:ces:ceswps:_4217

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    1. Alan T. Peacock & Jack Wiseman, 1961. "The Growth of Public Expenditure in the United Kingdom," NBER Books, National Bureau of Economic Research, Inc, number peac61-1, octubre-d.
    2. Hans-Werner Sinn & Timo Wollmershäuser, 2011. "Target Loans, Current Account Balances and Capital Flows: The ECB’s Rescue Facility," CESifo Working Paper Series 3500, CESifo Group Munich.
    3. Schuknecht, Ludger & Moutot, Philippe & Rother, Philipp & Stark , Jürgen, 2011. "The Stability and Growth Pact - crisis and reform," Occasional Paper Series 129, European Central Bank.
    4. Hauptmeier, Sebastian & Heipertz, Martin & Schuknecht, Ludger, 2006. "Expenditure reform in industralised countries: a case study approach," ZEW Discussion Papers 06-50, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    5. Mueller,Dennis C., 2003. "Public Choice III," Cambridge Books, Cambridge University Press, number 9780521894753, April.
    6. Alberto F. Alesina & Silvia Ardagna, 2012. "The design of fiscal adjustments," NBER Working Papers 18423, National Bureau of Economic Research, Inc.
    7. Hauptmeier, Sebastian & Sanchez Fuentes, Jesus & Schuknecht, Ludger, 2010. "Towards expenditure rules and fiscal sanity in the euro area," Working Paper Series 1266, European Central Bank.
    8. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises," IMF Working Papers 08/224, International Monetary Fund.
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