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Welfare State, Market Imperfections, and International Trade

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  • Hassan Molana
  • Catia Montagna

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Abstract

Within a two-sector-two-country model of trade with aggregate scale economies and unionisation, a more generous welfare state in one country increases welfare in that country and can have positive spillover effects on the other. Furthermore, synchronised expansions of social security are more welfare enhancing than unilateral ones. Our results counter the fears that a race to the bottom in social standards may result from the ‘shrinking-tax-base’ entailed by international capital mobility. While affecting trade patterns and income distribution, capital mobility interacts with welfare state policies in increasing welfare, even when capital flows out of the country that initiates the shock. Copyright Springer Science+Business Media, LLC 2007

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File URL: http://hdl.handle.net/10.1007/s11079-007-9003-2
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Bibliographic Info

Article provided by Springer in its journal Open Economies Review.

Volume (Year): 18 (2007)
Issue (Month): 1 (February)
Pages: 95-118

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Handle: RePEc:kap:openec:v:18:y:2007:i:1:p:95-118

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Web page: http://www.springerlink.com/link.asp?id=100323

Related research

Keywords: Welfare state; Circular causation; International trade; E6; F1; F4; H3; J5;

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  1. Hassan Molana & Catia Montagna, 2002. "Cumulative Causation, Capital Mobility and the Welfare State," Dundee Discussion Papers in Economics 128, Economic Studies, University of Dundee.
  2. Alberto Alesina & Roberto Perotti, 1994. "The Welfare State and Competitiveness," NBER Working Papers 4810, National Bureau of Economic Research, Inc.
  3. Perotti, Roberto & Alesina, Alberto, 1997. "The Welfare State and Competitiveness," Scholarly Articles 4553027, Harvard University Department of Economics.
  4. Molana, Hassan & Montagna, Catia, 2006. "Aggregate scale economies, market integration, and optimal welfare state policy," Journal of International Economics, Elsevier, vol. 69(2), pages 321-340, July.
  5. Dani Rodrik, 1997. "Has Globalization Gone Too Far?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 57.
  6. Acemoglu, Daron & Shimer, Robert, 2000. "Productivity gains from unemployment insurance," European Economic Review, Elsevier, vol. 44(7), pages 1195-1224, June.
  7. Young, Allyn A., 1928. "Increasing Returns and Economic Progress," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 38, pages 527-542.
  8. Frederick van der Ploeg, 2003. "Do Social Policies Harm Employment and Growth?," CESifo Working Paper Series 886, CESifo Group Munich.
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Cited by:
  1. Federica Calidoni, 2004. "Aggregate and Disaggregate Analysis of the Effects of Government Expenditure on Growth," Dundee Discussion Papers in Economics 160, Economic Studies, University of Dundee.

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