To reduce public debt, the welfare state has to be cut back. Discuss - Essay Example

It shall discuss the reduction of public debt, and how cutting back on the welfare state can help reduce or manage it. High public debt can weigh heavily on economic growth. “While causality runs both ways, an important causal channel is taxation: high public debt implies the need to distort economic activity (labor, capital) to service the debt (either through taxation or cuts in productive spending) which dampens economic growth” (Ostry, Ghosh, Espinosa, 2015, p. 2). This reasoning also relates to the fact that establishing a basis for sustainable growth would call for payment made upfront for the reduction of current debts.

For countries experiencing gaps in their economic structures while being burdened with public debts, an apparent tradeoff is usually observed between the establishment of public capital stock and the need to secure a basis for increased economic growth (Ostry, et.al., 2015). Based on an analysis of countries which have gone through economic stagnation, the issue of high public debt has been named as a major issue holding back the country’s progress (Ostry, et.al., 2015). In Europe, the early 2000s brought about economic stagnation in the region (Busch, 2010).

Such economic stagnation has had a negative effect on their social security processes not just in the region, but also in other parts of the world (Alcock, 2014). Since the 1990s, the welfare state in most industrialized nations have experienced significant pressure and strain due to the increase in population, changes in the demographic qualities of the population, the increase in public debt, and low rates of employment (Busch, 2010). As such, major reforms were implemented to address these issues.

The mid-2000s saw an economic boom for the region, allowing pressure off the welfare state (Busch, 2010). However, this also meant a significant increase in public debt, including an increase in unemployment rates. Growth rates for the region were