Welfare State, family and the market's SINS in the EU

Our purpose is to show that a well-designed Welfare State is a fundamental fiscal policy instrument which allows mending of the main shortcomings of the market mechanism, i.e. lack of Stability, Inequality, disregard of Needs, lack of economic Security: in short, we call them the market’s SINS. We show how the family is the main agent for an effective Welfare State, as the firms are for the market. We use detailed data on all the European countries to characterize the different models of welfare within Europe. A cross-section analysis shows that the main goals are better achieved when the social protection benefits focus on the functions of family and children, sickness and health care, because they induce the greatest poverty reduction. We show that for families with children the better working arrangement – which is associated with higher GDP per capita and lower inequality – is one parent working full-time and one parent part-time. We quantify the cross-section variability related to the age structure for the function of pensions. For a sample of seven major European countries we measure the degree of pro-cyclical or countercyclical relationship between social protection expenditures and GDP per capita from 1995 to 2010. In Germany, a Keynesian economic policy in 2009 is associated with a sharp rebound in 2010. We measure the relationship between Welfare State benefits and public budget, given as a constraint. We show a possible relationship between social protection benefits and family savings.