Introduction

Welfare state arrangements are more comprehensive in Western Europe, or Europe for short, than in other parts of the world. As a result, welfare state spending (including expenditures on education) typically hovers at around 25–35 per cent of GDP among European countries (gross figures, OECD, 2002). The achievements are also impressive. In particular, there is considerable income security over the individual's life cycle, largely as a result of social insurance. Governments have also boosted the consumption of various types of (personal) social services with strong elements of investment in human capital – in particular, education and health care, as well as child care in some countries. Poverty has also been mitigated, not only as a result of social insurance but also via selective income support and social services that are made available for low-income groups. In countries where the children of low-income groups enjoy a relatively large share of aggregate education services, the factor incomes of these groups have also improved.

Some welfare state arrangements also contribute to favourable economic and social dynamics. For example, when aggregate investment in human capital is stimulated, future labour productivity is boosted, which in turn improves the future aggregate tax base. As a result, in a long-term perspective, these types of welfare state spending may even be ‘self-financing’ for the government – an example of virtuous welfare state dynamics.