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Essays on Welfare State Retrenchment


This dissertation is comprised of several essays on welfare state retrenchment in advanced industrial democracies since 1990. The intent is to provide a strong empirical grounding for the theories of welfare state retrenchment using original data sets and state-of-the-art machine learning methods. It also goes beyond the causes of retrenchment to provide suggestive evidence for several effects of retrenchment on the economic behavior of individuals.

Overall, the dissertation finds that retrenchment events are most likely to occur when highly-indebted, labor-docile countries experience public fiscal crises, exemplified by rising sovereign debt yields, which are preceded by a weakening of the governing power held by incumbent politicians. Political weakness creates electoral uncertainty which, in combination with economic frailty, sets off a rise in the premium states must pay to issue further debt. This creates significant fiscal pressure for retrenchment. Once retrenchment is carried out, evidence suggests that its effects impact the behavior and mindset of individual consumers, potentially decreasing their expenditures and optimism over their short-term economic future.

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