Federalism and the welfare state: The German case

The comparative welfare state research regularly highlights 'federalism' as a factor that has delayed welfare state development and sets clear 'limits to welfare state growth'. Yet, apparently German federalism goes together with one of the most generous welfare states of the world. This paper argues that federalism in Germany not only has not hindered strong welfare state expansion, but actually has contributed to it. The special variant of 'cooperative federalism' has blurred political and fiscal responsibilities, and the contribution financed Bismarckian welfare state has allowed the central government and the states to come to terms at the expense of a third party. A steady process of externalizing costs out of the public budgets and into the parafiscal budgets of the welfare state has been the result.