Fiscal welfare for the poor: what is the logic? Insights on the political economy of in-work tax benefits in the US, the UK and France

Social Tax Expenditures (STEs) are derogations to the fiscal norm serving social or employment policy purposes. OECD research conducted since the late 1990’s has shown the variety of policy sectors in which STEs are found, from family policy to employment policies or home ownership (Adema, 1997 and following), as well as their large diffusion across welfare regime differentiation. This research (which is based on partial data and thus constitutes a lower bound estimation) shows that the use of these policy instruments is a significant trend, notably in France and the UK. Tax expenditures scholars in the US coined the term “hidden welfare state” (Howard, 1997) to describe the politics behind the use of these tools in America. STEs in Europe could similarly be conceived as forming part of a “European hidden welfare state”, yet this would be a surprising finding in the context of mature welfare states benefitting from strong popular support. Do STEs in Europe correspond to back door public spending, away from public scrutiny? What is the logic at play behind the use of such instruments? This paper seeks to answer this question through comparative case studies of two welfare states traditionally understood as corresponding to different welfare regimes, namely France and the UK. By identifying the redistributive patterns associated with specific tax expenditures in both countries, we aim to test the existence of constituency-catering logics which might be at play in politicians’ choice to rely on indirect rather than direct spending.