The Politics of Shifting Burdens: The German Fiscal Welfare Corporatism

This paper analyses the fiscal dynamics of the German welfare state from the mid-1960s to the mid-1990s. Based on an in-depth analysis of major welfare legislations, it shows that German welfare state generosity was “financed” by shifting expenditure burdens between the social insurance funds and the federal budget.  This policy was backed by a cross-class and cross-party alliance between social politicians, employers, trade unions, works councils and public social policy administrators. Shifting burdens was used not only to relieve the federal budget of cyclical social expenditures, but since the end of the 1970s was also implemented as a way to shunt expenditures between the budgets of different social insurance budgets (pension, unemployment and health insurance). The cross-class and cross-party alliance was in favour of offloading the costs of industrial restructuring, rationalization and German unification, first onto the social insurance funds, and later, with the de-legitimization of a further rise in social insurance contribution rates, onto the federal budget as well. The politics of shifting burdens also explains the stability of the German welfare state because it helped the country cope with various socio-economic and political challenges. However, the offloading of costs of industrial restructuring onto the social insurance budget also resulted in severe fiscal resource constraints and prompted the rise of non-wage labour costs. Both (unintended, but over decades also partially accepted) consequences resulted in fundamental tensions, which broke up German welfare corporatism in the mid-1990s.