Analyzing welfare effort: An appraisal of comparative methods

How do we measure and rate the social welfare efforts of nations? Most people consider the U.S. and Japan welfare laggards when compared with European countries. This view derives from a widely used measure of “welfare effort”-direct government outlays for social programs as the percentage of a nation's gross domestic product (GDP). This article challenges several assumptions implicit in the conventional measure and suggests an alternative approach in assessing “welfare effort.” By incorporating indirect tax expenditures and controlling for the differences in tax burdens and social need for welfare spending among countries, the alternative measure (the NET index) not only broadens the conceptual boundaries of welfare effort, but also affords a more meaningful standard for comparative analysis. To illustrate, this study compares the welfare effort levels of ten developed nations measured under several versions of the NET index.