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Social insurance financing is notoriously path-dependent, yet in Israel a series of unobtrusive changes ultimately led to the virtual elimination of employer contributions. This outcome is explained by combining insights into the politics and political economy of taxation with a theoretical approach to understanding institutional change which takes conflict seriously. Institutional arrangements typically emerge as settlements of inherently contradictory goals, and their foundational contradictions are not necessarily eliminated through processes of reproduction. Our case study illustrates how conflicting interests generate susceptibility to institutional change and shape its trajectories. While recent extensions to path-dependency theory suggest that institutions become vulnerable when returns decrease, we find that change may result from unbalanced returns (increasing for some while decreasing for others) or altered conditions which unleash repressed conflicts of interest. Further, in contrast to the expectation that institutional evolution follows a unidirectional path in which reversals are unlikely, we identify a dialectical trajectory which potentially includes the revival of seemingly foregone alternatives.

Dialectics of institutional change: the transformation of social insurance financing in Israel