Structural overstretching: how Finland can afford its welfare state

Abstract

Over the past 15 years (2010–2025), the Finnish welfare state (FWS) has gradually overstretched itself as its funding of social expenditure has permanently lagged behind the gross costs of its transfers, services, and regulations (TSR), and the social expenditure/GDP ratio has reached exceptionally high figures. This has gradually resulted in permanent deficit funding, accelerating public debt/GDP ratio, and fiscal policies aimed at curbing the accelerating growth of social expenditure. The crucial question to be investigated here is, how can the overstretched FWS afford its TSRs? After reviewing recent changes in social expenditure and its funding, detailed attention is devoted to different ways (called here tricks of trade) the government and social partners have coped with overstretching, and it is shown that social investments have actually faced significant cuts. It is further argued that the social investment approach has some potential in navigating progressively out of this exceptionally difficult situation.