The governments have to make their tough decisions as the problem of public debts is inescapable: raise taxes or cut spendings

Government finances itself through two channels: taxation and borrowing. Any increase in government spending can lead to an increase in tax in the future. Building up a welfare state requires a massive increase in government spendings. Therefore, when people receive better benefits, people as well as firms have to face higher tax levels. With high tax levels, many companies will choose to move outside the country, as their corporate costs are increased by taxes and their competitiveness is affected. Thus a welfare state may slow down a country's economic growth. Therefore, without the support of a strong economy, a country will never succeed to build up a welfare system. However, the welfare system has many advantages. It can avoid social unrests as people have safe nets that people's living standards will not fall below a certain level. This also reduces the opportunity cost of starting a new business. This is why we can see many successful companies were founded in developed countries. Nowadays, many developed countries have very high debt level. The ratios of the total US debt to its GDP is over 100% and the ratio of the UK debt to GDP is over 89%. These countries have two choices: to increase their tax levels or cut their government spendings. Increasing their tax levels can maintain their welfare systems, but may force some companies to move out. Cutting government spendings will affect their welfare systems and may lead to some social unrest and affect their future outputs. The governments have to make their tough decisions as the problem of public debts is inescapable.