Hayekian Welfare States: Explaining the Co-Existence of Economic Freedom and Big Government

Andreas Bergh

No 1252, Working Paper Series from Research Institute of Industrial Economics

Abstract: The idea that all types of economic freedom – including limited government – promote prosperity is challenged by the fact that some countries successfully combine a large public sector with high taxes and otherwise high levels of economic freedom. To explain the co-existence of economic freedom and big government, this paper distinguishes between big government in the fiscal sense of requiring high taxes, and in the Hayekian sense of requiring knowledge that is difficult to acquire by a central authority. The indicators of government size included in measures of economic freedom capture the fiscal size but ignore the Hayekian knowledge problem. hinking about government size in both the fiscal and Hayekian dimensions suggests the possibility of Hayekian welfare states, where trust and state capacity facilitate experimentation and learning, resulting in a public sector that is big in a fiscal sense but not necessarily more vulnerable to the Hayekian knowledge problem. Pensions in Sweden are used as a case to illustrate the empirical relevance of the argument. The new pension system represents big government in a fiscal sense, but by relying on decentralized choice it requires relatively little central knowledge.

Keywords: Welfare state; Hayek; Economic freedom; Economic reforms; State capacity (search for similar items in EconPapers)
JEL-codes: B25 H11 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2018-11-23
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.ifn.se/wfiles/wp/wp1252.pdf Full text (application/pdf)

Related works:
Journal Article: Hayekian welfare states: explaining the coexistence of economic freedom and big government (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:iuiwop:1252

Access Statistics for this paper

More papers in Working Paper Series from Research Institute of Industrial Economics Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by Elisabeth Gustafsson ().