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deficit bias



The market system is efficient but not equitable. Thus, in any market system there will be rich and poor. There are also circumstances (injury, age, job loss, death of the breadwinner, etc.) that could push any particular person into a state of poverty. Many governments have taken upon themselves the responsibility of redistributing wealth and binding up the less fortunate through a welfare system. This is accomplished by collecting taxes from those with means and redistributing the money collected to the less fortunate through social programs or in the form of welfare payments.

A situation in which the government plays a key role in “the protection and promotion of the social and economic welfare of its citizens” is called the welfare state (From The Encyclopedia Britannica online edition “welfare state”). The acceptance of an important role for government in promoting the welfare of the population gained favor in Europe during the second half of the 20th century, and the welfare state grew. The growth of the welfare state, without sufficient tax collection, led to Europe’s large deficit bias in the 1970s and 1980s.   

Note: Economists also use the term welfare to describe how well-off or happy the people of a country are. GDP per person is the most often used measure of welfare, but other measures have been derived.

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