Introduction

In the course of the twentieth century few western nations have experienced political upheaval on the scale of that in Austria. The country's political transformation – involving phases of democratic (1918–33/34), pre-fascist (1934–38) and national-socialist rule (1938–45) – from an economically backward, multi-ethnic superpower to a small democracy at the centre of Europe has corresponded in economic terms with its rise to a position as one of the world's richest nations. While the fate of federalism lay at these political crossroads, the welfare state established under the Habsburg monarchy survived these periods of political upheaval relatively unscathed.

The example of Austria is of particular interest for a comparative analysis of the relationship between federalism and the welfare state because, alongside Germany, it is recognized as being a pioneer of state social policy. This, along with its high government spending and public social expenditure as a percentage of GDP, seems at first glance to flout the hypothesis advanced by Brennan and Buchanan that the Leviathan is bridled by a federal state structure. However, this is only an apparent contradiction, since Austria only adopted a federal political structure in 1920, when social insurance programmes launched in the context of an authoritarian but decentralized unitary state had already been in existence for some time.