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International Integration, Risk and the Welfare State

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  • Anderson, Torben M
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    Abstract

    How does international integration affect the welfare state? Does it call for a leaner or an expanded welfare state? International integration may affect the distortions caused by welfare state activities but also the risks motivating social insurance mechanisms. This paper addresses these potentially counteracting effects in a fully specified intertemporal two-country stochastic endowment model, focusing on the implications when product market integration reduces trade frictions across national product markets. It is shown that lower trade frictions may increase the marginal costs of public funds, which gives an argument for reducing (steady-state) public consumption. However, tighter integration of product markets unambiguously leads to more variability in private consumption, and this gives a case for expanding the social insurance provided via state-contingent public sector activities (automatic stabilizers). Copyright 2002 by The editors of the Scandinavian Journal of Economics.

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Scandinavian Journal of Economics.

    Volume (Year): 104 (2002)
    Issue (Month): 3 (September)
    Pages: 343-64

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    Handle: RePEc:bla:scandj:v:104:y:2002:i:3:p:343-64

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    Web page: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1467-9442

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    1. Hans-Werner Sinn, 1996. "A Theory of the Welfare State," NBER Working Papers 4856, National Bureau of Economic Research, Inc.
    2. van der ploeg, F., 1987. "Coordination of optimal taxation in a two-country equilibrium model," Economics Letters, Elsevier, vol. 24(3), pages 279-285.
    3. Maurice Obstfeld and Kenneth Rogoff., 1999. "New Directions for Stochastic Open Economy Models," Center for International and Development Economics Research (CIDER) Working Papers C99-107, University of California at Berkeley.
    4. Dani Rodrik, 1998. "Why Do More Open Economies Have Bigger Governments?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 997-1032, October.
    5. Braconier, Henrik & Holden, Steinar, 1999. "The Public Budget Balance - Fiscal Indicators and Cyclical Sensitivity in the Nordic Countries," Working Paper 67, National Institute of Economic Research.
    6. Wildasin, David E, 1995. " Factor Mobility, Risk and Redistribution in the Welfare State," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 527-46, December.
    7. Alan C. Stockman & Linda L. Tesar, 1991. "Tastes and technology in a two-country model of the business cycle: explaining international co-movements," Working Paper 9019, Federal Reserve Bank of Cleveland.
    8. Esping-Andersen, Gosta, 1999. "Social Foundations of Postindustrial Economies," OUP Catalogue, Oxford University Press, number 9780198742005.
    9. David E. Wildasin, 2000. "Labor-Market Integration, Investment in Risky Human Capital, and Fiscal Competition," American Economic Review, American Economic Association, vol. 90(1), pages 73-95, March.
    10. Jonathan Coppel & Martine Durand, 1999. "Trends in Market Openness," OECD Economics Department Working Papers 221, OECD Publishing.
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    Cited by:
    1. Michele Di Maio, 2006. "Uncertainty, Gains from Specialization and the Welfare State," Working Papers 36-2006, Macerata University, Department of Finance and Economic Sciences, revised Oct 2008.

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