Just as the 19th century ‘liberal’ state required a stronger tax base, so the evolution of modern welfare provisions put new demands on the taxing capacity of the state. For most developed countries, broad trajectory of welfare state development shows a common trend toward increased taxation in parallel with increased spending over most of the 20th century. By the 1980s and 1990s, it was possible to argue that the welfare state had grown to its limits, and that the ‘new politics’ of the welfare state involved managing retrenchment in an age of ‘permanent austerity’.
However, the experiences of the less-developed economies of the European periphery had a different trajectory. In Spain, Portugal, Greece, and Ireland, welfare expansion started much later, delayed until the1970s by the overhang of authoritarian regimes in the first three of these countries, and late economic development in all of them. Pressure for rapid welfare catch-up translated into the need to generate more revenues, running counter to the trend prevailing elsewhere. International discourse had shifted, and the new orthodoxies now prioritized spending cuts over tax increases to reduce public deficits. Indeed, international commentators readily pointed to public deficits in the periphery as evidence of fiscal profligacy.
Building up revenue capacity under these conditions posed problems in countries that had policy legacies of weak fiscal capacity and varying degrees of administrative capacity.
This paper examines the domestic political economy conditions and the international opportunities and constraints that shaped the peripheral European countries’ commitments to expand their revenue capacities in parallel with their welfare expenditures.
