The Challenges of Balancing Budgets in Welfare States

Ramil, Abbasov (2025) The Challenges of Balancing Budgets in Welfare States. American Journal of Economics and Business Management, 8 (3). pp. 1165-1176. ISSN 2576-5973

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Abstract

Welfare states are characterized by comprehensive social protection systems designed to promote economic security and social equity, with social expenditures in many OECD countries ranging from 15% to over 27% of GDP (OECD, 2023). However, the extensive benefits provided—encompassing universal healthcare (Barr, 2012), free education, robust pension schemes, and unemployment insurance—pose significant fiscal challenges. For instance, in 2023, Scandinavian countries allocated as much as 27% of their GDP to social spending, while the old-age dependency ratio in many advanced economies is projected to rise from around 30% today to over 60% by 2050 (OECD, 2022), increasing the fiscal burden dramatically. Economic volatility further exacerbates these challenges: during downturns such as the 2008 financial crisis and the COVID-19 pandemic, tax revenues in several countries fell by 2–3 percentage points of GDP, while public debt levels surged by up to 5 percentage points. Moreover, political constraints, including short-term electoral cycles and entrenched interest group pressures, often delay the implementation of essential reforms. This article examines these multifaceted challenges by integrating theoretical frameworks, empirical evidence, and detailed statistical data from international organizations. Through case studies of countries like Sweden, Germany, and the United Kingdom, we assess the inherent trade-offs between sustaining extensive social welfare benefits and maintaining fiscal discipline (European Commission, 2022). Our findings suggest that while robust welfare policies underpin social stability and foster long-term human capital development, ensuring fiscal sustainability in an era of demographic shifts and economic uncertainty necessitates innovative fiscal strategies, comprehensive tax reforms, and structural adjustments.

Item Type:	Article
Subjects:	Q Science > Q Science (General)
Divisions:	Postgraduate > Master's of Islamic Education
Depositing User:	Journal Editor
Date Deposited:	16 Apr 2025 12:28
Last Modified:	16 Apr 2025 12:28
URI:	http://eprints.umsida.ac.id/id/eprint/15980

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