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The Decline of the Welfare State: Demography and Globalization

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Author Info

  • Assaf Razin

    ()
    (Tel Aviv University)

  • Efraim Sadka

    ()
    (Tel Aviv University)

Abstract

In The Decline of the Welfare State, Assaf Razin and Efraim Sadka use a political economy framework to analyze the effects of aging populations, migration, and globalization on the deteriorating system of financing welfare state benefits as we know them. Their timely analysis, supported by a unified theoretical framework and empirical findings, demonstrates how the combined forces of demographic change and globalization will make it impossible for the welfare state to maintain itself on its present scale. In much of the developed world, the proportion of the population aged 60 and over is expected to rise dramatically over the coming years -- from 35 percent in 2000 to a projected 66 percent in 2050 in the European Union and from 27 percent to 47 percent in the United States -- which may necessitate higher tax burdens and greater public debt to maintain national pension systems at current levels. Low-skill migration produces additional strains on welfare-state financing because such migrants typically receive benefits that exceed what they pay in taxes. Higher capital taxation, which could potentially be used to finance welfare benefits, is made unlikely by international tax competition brought about by globalization of the capital market. Applying a political economy model and drawing on empirical data from the EU and the United States, the authors draw an unconventional and provocative conclusion from these developments. They argue that the political pressure from both aging and migrant populations indirectly generates political processes that favor trimming rather than expanding the welfare state. The combined pressures of aging, migration, and globalization will shift the balance of political power and generate public support from the majority of the voting population for cutting back traditional welfare state benefits.

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Bibliographic Info

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This book is provided by The MIT Press in its series MIT Press Books with number 0262182440 and published in 2005.

Volume: 1
Edition: 1
ISBN: 0-262-18244-0
Handle: RePEc:mtp:titles:0262182440

Contact details of provider:
Web page: http://mitpress.mit.edu

Related research

Keywords: political economy; welfare; globalization; demography;

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Cited by:
  1. Chang Woon Nam & Doina Maria Radulescu, 2005. "Effects of Corporate Tax Reforms on SMEs’ Investment Decisions under the Particular Consideration of Inflation," CESifo Working Paper Series 1478, CESifo Group Munich.
  2. Massimo Baldini & Luca Beltrametti, 2006. "Alternative Approaches to Long-term Care Financing. Distributive Implications and Sustainability for Italy," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 142(V), pages 117-121.
  3. Victoria Chorny & Rob Euwals & Kees Folmer, 2007. "Immigration policy and welfare state design; a qualitative approach to explore the interaction," CPB Document 153, CPB Netherlands Bureau for Economic Policy Analysis.
  4. Simonovits, Andras, 2007. "Can population ageing imply a smaller welfare state?," European Journal of Political Economy, Elsevier, vol. 23(2), pages 534-541, June.
  5. Torben Andersen & Allan Sørensen, 2011. "Globalisation squeezes the public sector—is it so obvious?," International Tax and Public Finance, Springer, vol. 18(4), pages 369-382, August.
  6. Torben M. Andersen & Allan Sørensen, 2010. "Globalization, tax distortions and public sector retrenchment," Economics Working Papers 2010-09, School of Economics and Management, University of Aarhus.

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