Modern welfare states include Germany, France, Belgium and the Netherlands, as well as the Nordic countries, such as Iceland, Sweden, Norway, Denmark, and Finland which employ a system known as the Nordic model. Esping-Andersen classified the most developed welfare state systems into three categories; social democratic, conservative, and liberal.
The welfare state involves a transfer of funds from the state to the services provided (i.e. healthcare, education, etc.) as well as directly to individuals ("benefits"), and is funded through taxation. It is often referred to as a type of mixed economy. Such taxation usually includes a larger income tax for people with higher incomes, called a progressive tax. Proponents often argue that this helps reduce the income gap between the rich and poor.
The German term sozialstaat ("social state") has been used since 1870 to describe state support programs devised by German sozialpolitiker ("social politicians") and implemented as part of Bismarck's conservative reforms. In Germany, the term wohlfahrtsstaat, a direct translation of the English "welfare state", is used to describe Sweden's social insurance arrangements.
The literal English equivalent "social state" did not catch on in Anglophone countries. However, during the Second World War, Anglican Archbishop William Temple, author of the book Christianity and the Social Order (1942), popularized the concept using the phrase "welfare state." Bishop Temple's use of "welfare state" has been connected to Benjamin Disraeli's 1845 novel Sybil: or the Two Nations (i.e., the rich and the poor), where he writes "power has only one duty—to secure the social welfare of the PEOPLE". At the time he wrote Sybil, Disraeli, later prime minister, belonged to Young England, a conservative group of youthful Tories who disagreed with how the Whig dealt with the conditions of the industrial poor. Members of Young England attempted to garner support among the privileged classes to assist the less fortunate and to recognize the dignity of labor that they imagined had characterized England during the Feudal Middle Ages.
The Swedish welfare state is called folkhemmet – literally, "the people's home", and goes back to the 1936 compromise, as well as another important contract made in 1938, between Swedish trade unions and large corporations. Even though the country is often rated comparably economically free, Sweden's mixed economy remains heavily influenced by the legal framework and continual renegotiations of union contracts, a government-directed and municipality-administered system of social security, and a system of universal health care that is run by the more specialized and in theory more politically isolated county councils of Sweden.