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Quality of Government and the Welfare State

Quality of Government and the Welfare State. Bo Rothstein, Marcus Samanni & Jan Teorell The Quality of Government Institute University of Gothenburg & Lund University June 14, 2010 QoG Working Paper Series 2010:10 www.qog.pol.gu.se. The Welfare State Puzzle. Why so much variation?

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Quality of Government and the Welfare State

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  1. Quality of Government and the Welfare State Bo Rothstein, Marcus Samanni & Jan Teorell The Quality of Government Institute University of Gothenburg & Lund University June 14, 2010QoG Working Paper Series 2010:10 www.qog.pol.gu.se

  2. The Welfare State Puzzle • Why so much variation? • Is it public opinion? • What about religion? • Can it be capitalism/the market economy? • What about globalization?

  3. The Previously Most Successful Explanation: Power Resource Theory • Originally developed by Walter Korpi and associates • Welfare state is about class-related distributive conflict • The more political resources possessed by the working class, such as a strong and united union supporting Labor/Social Democratic parties at the polls, the more extensive the welfare state

  4. Why PRT is incomplete • For wage earners, capitalism is a risky business => creates demand for social insurance and social protection • But such demand can be directed at various institutions – unions, self-help organizations, employers organizations… • Why the state?

  5. Trust and the Welfare State: A leap of faith? • Social insurance/protection is costly • Will the state be able to collect enough fees/taxes? • Will the state handle the money in a responsible way or will policies be drowned in corruption etc? • Will the state be able to deliver and how? • Will the state be able to handle “free-riding”

  6. A Theory of “Contingent Consent” • When deciding whether to support welfare state policies, people do not act from simple calculations based on material benefits • Instead, the make their decision based on: A) the policies’ substantive justice B) the policies’ procedural justice C) the likelihood of control of “free riding”

  7. Two Hypotheses • Countries with low QoG (e.g., high levels of corruption and/or clientelism and patronage), should develop less encompassing welfare states • The success of PRT should be contingent on the level of QoG: the higher the level of QoG, the stronger should be the effect of working class mobilization

  8. Methodological problems • How to establish a comparable “measure” of the expansion of the welfare state? • Historical trajectories vs. cross-country variation • Across space: what countries to include? • Over-time: levels vs. change? • How to deal with observational dependence

  9. Our Approach • Two Measures of the Welfare State • Social spending on cash benefits and social service provisions as % of GDP • Benefit generosity index (replacement rates, eligibility criteria and coverage for unemployment insurance, sickness leave and pensions) • Multiple regression based on both cross-temporal and cross-country variation where data is available = 18 OECD countries in 1984-2000 • Since era of retrenchment (rather than expansion), we focus on levels of welfare state • Control for observational dependence by “subtracting out” the over-time correlation for each country (autocorrelation)

  10. Data • Data from the QoG social policy database: www.qog.pol.gu.se • Social Spending is from OECDs SOCX-database • Benefit generosity from Lyle Scruggs • QoG is from the International Country Risk Guide (bureaucratic quality + rule of law + control of corruption) • Left/CD cabinet from Evelyn Huber et al.

  11. Results • A country with the best possible level of QoG will spend 21 percentage units more of its GDP on the welfare state compared to a country with the lowest possible level of QoG • And this also holds for benefit generosity • The effect of left cabinets on the level of welfare state effort is dependent on the level of QoG

  12. Benefit Generosity & QoG in 18 OECD countries R2: 0.25 Sources: Scruggs (2006); ICRG Note: Both the Benefit Generosity and the Quality of Government variables are measured as the mean value over time, from the first available observation until 2002.

  13. Power Resources AND QoG Sources: Scruggs (2006); Huber et al (2004) Note: Each dot represents one country and year (e.g. Sweden 1984). The observations are split into two equally sized groups based on their level of QoG. The regression lines show that the effect of left cabinets on the benefit generosity index is bigger for the observations with high QoG than for the observations with low QoG.

  14. Implications • QoG and PRT are complements, none is sufficient, both are necessary • The Nordic countries started their welfare state programs in an extremely advantagous position • In countries with low QoG, left political mobilization is not likely to result in an encompassing welfare state

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