Harmonizing Social Welfare and Economic Growth: Case Studies of European Countries and Implications for Korea

Abstract

Welfare spending continues to garner a bigger chunk of the national budget in Korea. This has become a key economic issue attracting much public attention. Fiscal conservatives call for tighter controls on welfare spending, while some are calling for greater welfare spending in order to temper the effects of economic polarization. In this context, this paper analyzes relation between level of welfare spending and economic growth and proposes some conditions to create welfare system in favor of economic growth. Beyond quantitative analyses, the paper reviews reforms in welfare policy in Sweden, Denmark, Germany and Netherlands in order to understand how these countries have reacted to domestic and external challenges in their welfare system. Through economic analysis and case studies, the paper draws following policy implications for Korea. First, it is necessary to maximize existing welfare policy, but also develop ways to raise taxes in a growth-friendly manner. Second, it is highly recommended to create an atmosphere conducive to policy innovation. Third, it is necessary to establish growth-oriented welfare regimes with a special focus on strengthening human capital and employment rates.