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Financial Restraints in a Mature Welfare State--The Case of Denmark

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  • Torben M. Andersen
  • Lars Haagen Pedersen

Abstract

The Scandinavian welfare states are mature in the sense of having a high level of standards for public provisions of welfare services as well as a high replacement level for income transfers, especially for low-income groups. In this welfare model, individuals have basic rights to welfare services and social transfers independently of their ability to pay, their labour-market history, etc. The financial viability of the model relies on a high tax burden and a high level of labour-force participation for males and females. Evaluated on the basis of international comparisons of income levels and inequality, the model has performed well. In a forward-looking perspective, however, the welfare model faces problems that may put the financial viability of the model at risk. Two important challenges are demographic changes and the so-called growth dilemma (increased demand for services and leisure). We discuss these issues using Denmark as an example and argue that while these two challenges may be of the same order of magnitude, it is easier to propose solutions to the demographic challenges than to the growth dilemma which are consistent with the basic principles of the welfare state. Copyright 2006, Oxford University Press.

Suggested Citation

  • Torben M. Andersen & Lars Haagen Pedersen, 2006. "Financial Restraints in a Mature Welfare State--The Case of Denmark," Oxford Review of Economic Policy, Oxford University Press, vol. 22(3), pages 313-329, Autumn.
  • Handle: RePEc:oup:oxford:v:22:y:2006:i:3:p:313-329
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    Cited by:

    1. Holmøy, Erling & Strøm, Birger, 2013. "Computable General Equilibrium Assessments of Fiscal Sustainability in Norway," Handbook of Computable General Equilibrium Modeling, Elsevier.
    2. Torben M. Andersen, 2015. "The Nordic welfare model and welfare services - Can we maintain acceptable standards?," Economics Working Papers 2015-02, Department of Economics and Business Economics, Aarhus University.
    3. Westerhout, Ed, 2018. "Paying for the Ageing Crisis : Who, How and When?," Discussion Paper 2018-001, Tilburg University, Center for Economic Research.
    4. Erling Holmøy, 2007. "Fiscal sustainability: Must the problem be diminished before we can see it?," Discussion Papers 499, Statistics Norway, Research Department.
    5. Andersen, Torben M., 2012. "Fiscal sustainability and demographics – Should we save or work more?," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 264-280.

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