Policy Article

How to Deal with Inequality - Welfare System Challenges and European Responses

Kiel Policy Briefs

In their paper the authors Andreas Friedl, Dennis Görlich, Sebastian Horn, Christiane Krieger-Boden and Matthias Lücke argue that European welfare state systems, particularly those of the Nordic type, have apparently dampened the upward pressure from market income on inequality much more successfully than other. At the same time, extensive redistribution in Europe did not necessarily lead to severe losses of overall efficiency. According to the authors, rather the Nordic welfare state model, with its emphasis on social investment, activation, and human capital formation, seems to allow societies to enjoy the security of a comprehensive social net as well as the efficiency gains from fully functional markets and the creative destruction inherent in capitalism. Serious challenges like the demographic evolution and the requirements for fiscal sustainability lie ahead of the welfare state systems, and they require considerate public debates for efficient rather than sham solutions.

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