The Welfare State is under scrutiny: what is its function and how should it be reformed? In Discussion Paper No. 1018, Programme Director Dennis Snower explores the appropriate domain of the Welfare State by examining the degree to which we can rely on free enterprise to deliver the requisite amount of Welfare State services. In this context the author proposes three general proposals to mitigate government failure and create a willingness to examine the need for government support of welfare state services in terms of uncompensated costs and benefits that prevent free enterprise from operating efficiently.

Two specific proposals to address some of the most significant inefficiencies and inequities in the provision of Welfare State services are outlined. The first is based on putting the decision of where to split government and market provision of Welfare State services in the hands of consumers by providing Welfare State services free of charge, financing them out of general tax revenues, but giving people the option of relinquishing their entitlements to these services in specific areas in return for a rebate. The second proposal is to give jobless people the option of using the funds that finance their unemployment benefits to provide vouchers to the firms who hire them. These two proposals would be supplemented by a safety net for those who either are unable to work (such as the elderly, sick and disabled) or are working more productively in the household sector.

What is the Domain of the Welfare State?
Dennis J Snower

Discussion Paper No. 1018, November 1994 (HR)