The partisanship of systemic retrenchment: tax policy and welfare reform in Denmark 1975–2008

Abstract

We hypothesize that decisions to constrain government revenue may constitute an attractive strategy, especially to right-wing governments, when pursuing a preference for welfare state retrenchment. Whereas programmatic retrenchment in social policy programs imposes concentrated losses in return for diffuse gains, the distributive profile of systemic retrenchment via tax cuts might entail concentrated benefits for specified groups financed by diffuse losses for larger groups in a distant future. Consequently, the electorate may accept or even desire tax cuts and associated initiatives to curb government income relative to retrenchment measures of services and benefits. Our empirical analysis supports such theoretical propositions. In an extensive comparative analysis of all tax laws adopted by four Danish governments, we find clear partisan differences. In an in-depth study of the tax policy of the latest right-wing government, we moreover empirically support the causality of the argument as the government did in fact try to curb specific taxes in order to constrain the spending side of the welfare state in an indirect manner.