Social Spending and Economic Growth

In "Growing Public: Social Spending and Economic Growth" Peter Lindert argues in favor of welfare states and affirms that social transfers do not harm economic growth.

The first reason is "budget-stakes principles". This principle states that "the higher the budget, the higher the marginal cost of choosing the wrong fiscal design". The higher the negative impact of a wrong fiscal design, the higher the deadweight-cost (loss of economic efficiency).

The second reason is universalism. It is claimed that it is better to have broader and flatter taxes because they distort less economic signals & private behavior, are less costly to administer, and are fairer and more transparent. According to this principle, everyone is entitled to similar basic income support and services and a general sales tax (general excise tax, in Hawaii) should be applied uniformly to all products.

There are two choices about budget: size and fiscal design. The United States, for example, has opted out for a small budget and inefficient (with holes: exemptions, deductions, incentives, etc) whereas Sweden decided for a large budget and efficient (universal: flatter taxes).