The present paper will focus on the fact that public debts, compared to GDP, have been growing in the most advanced capitalist countries since the 1980’s, creating hence long before the crisis a situation of permanent public finance crisis. Contrary to the dominant point of view, this has not occurred because of a significant increase of public spending. If the high level of interest rates has produced an important “snow ball” effect, particularly in the euro zone, it is also very important to assess the role of tax cuts in the dynamics of public debt not only to understand the very class nature of neoliberalism but also to imagine exit options. The traditional Keynesian effects usually expected from tax reductions have indeed not played their role because of income distribution. Roughly, as tax reductions were targeted towards high income households, a great part of the new disposable income thus created has been saved and used to purchase financial assets, including public bonds. Tax reduction not only fed financialisation but also an increasing private demand for public debt (and in fact, public debt is a by-product of financialisation simply because of portfolio diversification). What the nation states could obtain before “for free” from dominant classes, thanks to their monopoly over taxes, had then to be obtained against an interest rate, paid by the whole population including the poorest taxpayers, on the financial markets. Public debt has to be understood as a manifestation of the antisocial redistribution induced by targeted tax reductions.

The paper will develop three elements: 1/ the theoretical aspects of this story will be examined in detail and, despite our sympathy for this framework, we will try to explain why the so called “functional finance” analysis doesn’t hold; 2/ some descriptive statistical elements that sustain our thesis will be given; and 3/ a SFC model with “public debt as private wealth” will be presented to show how tax reductions can lead to an unstable macro situation and/or increasing public debt to GDP ratio.

This paper will compare Hungary and Latvia in terms of the consequences of the financial crisis (i) on poverty and (ii) on welfare provisions. Although, it is still early to calculate the complete impact of the financial crisis, we consider that a first appraisal is instructive. We will consider particularly how inter-country differences can be accounted for by: (i) previous social protection reforms, and (ii) the macroeconomic strategies adopted in both countries.
In a first part, we establish the evolution of poverty during the economic crisis. The second part considers how the crisis affected welfare provisions. There was a direct impact, associated with private and public pension funds asset losses. There are also, longer, indirect effects. A crisis can open a window of opportunity for introducing deep reforms and recalibrating welfare states. This will further change the balance between social assistance, social insurance and private insurance ingredients.