An Empirical Analysis of the Dynamics of the Welfare State: The Case of Benefit Morale


  • All estimations discussed in Section 3 are based on data generously provided by Friedrich Heinemann. For helpful discussions and comments we would like to thank Eddy Bekkers, Johann K. Brunner, Joseph F. Francois, Franz Hackl, Friedrich Heinemann, Karin Mayr, Gerald Pruckner, Johann Scharler, two anonymous referees and the editors. The usual disclaimer applies. This paper was partly written during Martin Halla's visiting scholarship at the Center for Labor Economics at the University of California, Berkeley. He would like to give thanks for the stimulating academic environment and hospitality there. Financial support from the Austrian FWF (NFN Labor Economics and the Welfare State) is gratefully acknowledged.

* Corresponding author: Mario Lackner, Johannes Kepler University of Linz, Department of Economics, Altenbergerstr. 69, 4040 Linz, ph.: +43 70 2468 8246, fax: +43 70 2468 28246, email:


Does the supply of a welfare state create its own demand? Many economic scholars studying welfare arrangements refer to Say's law and insinuate a self-destructive welfare state. However, little is known about the empirical validity of these assumptions and hypotheses. We study the dynamic effect of different welfare arrangements on benefit fraud. In particular, we analyze the impact of the welfare state on the respective social norm, i.e. benefit morale. It turns out that a high level of public social expenditures and a high unemployment rate are associated with a small positive (or no) immediate impact on benefit morale, which however is (partly) crowded out by adverse medium and long run effects. In contrast to earlier studies we do not find that younger birth cohorts have lower values of benefit morale.