A difficult consensus: the making of the Spanish welfare State

Abstract

Before 1977, the Spanish government was unable (or unwilling) to increase taxation to finance new social programs. As an alternative to this lack of fiscal capacity, Spanish policy makers in the early 20th century promoted contributive social Insurance schemes (mostly financed from employers’ and employees’ contributions). To avoid social conflict in rural areas, rural laborers were also included in these programs. This, however, generated strong business opposition, especially from rural landowners and small-sized, labor intensive businesses (which were predominant in Spain). With the advent of democracy in 1931 new social plans were devised, but redistribution demands focused on land reform. After the Spanish civil war, Franco’s dictatorship consolidated a conservative social insurance model. Social benefits were kept very low and funding relied on employers’ and employees’ compulsory contributions. Labor moviment repression and trade protectionism allowed companies to easily transfer the cost of social insurance to wages and consumer prices. The introduction of income tax, after the restoration of democracy in 1977, gave way to a new social protection model. Taxfunded, non-contributory programs increased and social protection was extended to those without stable ties to the labor market. By 1977 wage dispersion had replaces property incomes concentration -particularly land ownership- as the main source of income inequality, and demands for tax-and-transfer redistribution replaced 1930s expropriation demands. Social spending growth, however, stagnated after the signing of the Maastricht treaty, before Spain reached the European levels.