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Finance and Welfare States in Globalizing Markets

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  • Bertola, Giuseppe

Abstract

It is theoretically clear and may be verified empirically that efficient financial markets can make it less necessary for policy to try and offset the welfare effects of labour income risk and unequal consumption dynamics. The literature has also pointed out that, since international competition exposes workers to new sources of risk at the same time as it makes it easier for individual choices to undermine collective policies, international economic integration makes insurance-oriented government policies more beneficial as well as more difficult to implement. This paper reviews the economic mechanisms underlying these insights and assesses their empirical relevance in cross-country panel data sets. Interactions between indicators of international economic integration, of government economic involvement, and of financial development are consistent with the idea that financial market development can substitute public schemes when economic integration calls for more effective household consumption smoothing. The paper’s theoretical perspective and empirical evidence suggest that to the extent that governments can foster financial market development by appropriate regulation and supervision, they should do so more urgently at times of intense and increasing internationalization of economic relationships.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6480.

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Date of creation: Sep 2007
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Handle: RePEc:cpr:ceprdp:6480

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Keywords: openness; redistribution;

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Cited by:
  1. Jappelli, Tullio & Pagano, Marco, 2008. "Financial Market Integration Under EMU," CEPR Discussion Papers 7091, C.E.P.R. Discussion Papers.
  2. Thibault Darcillon, 2013. "What Causes Labor-Market Volatility? The Role of Finance and Welfare State Institutions," Documents de travail du Centre d'Economie de la Sorbonne 13070, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  3. Biroli, Pietro & Buti, Marco & Turrini, Alessandro Antonio & Van Den Noord, Paul, 2008. "Defying the 'Juncker Curse’: Can Reformist Governments Be Re-elected?," CEPR Discussion Papers 6875, C.E.P.R. Discussion Papers.
  4. Thibault Darcillon, 2013. "What Causes Labor-Market Volatility? The Role of Finance and Welfare State Institutions," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00881198, HAL.

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