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Arguments about the incompatibility of globalization and generous welfare spending have given way to more nuanced analyses of how domestic-level institutions mediate the impact of globalization. This article discusses and compares two models – the labour-partisan politics model and the labour-monetary politics model – that identify national-level institutions that are said to make it possible for states to combine generous welfare spending and good economic performance. The empirical analysis shows that the labour-monetary politics model performs better for the period 1973–1989. However, institutional conditions that existed during these years are shown to be rather poor predictors of economic performance in the 1990s. The article goes on to discuss what this suggests for the continued viability of generous welfare spending and argues that while globalization might undermine some institutional settings conducive to continued generosity, there is evidence that other ones remain viable. [ABSTRACT FROM AUTHOR]