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International Integration, Risk and the Welfare State

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Author Info
Andersen, Torben M. () (University of Aarhus, EPRU, CEPR and IZA, Bonn)
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 of product market integration reducing 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).

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 456.

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Length: 27 pages
Date of creation: Mar 2002
Date of revision:
Handle: RePEc:iza:izadps:dp456

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Related research
Keywords: Trade frictions; risk-sharing; optimal public consumption; social insurance;

Find related papers by JEL classification:
E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
F10 - International Economics - - Trade - - - General
H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  2. 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. [Downloadable!]
    Other versions:
  3. 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. [Downloadable!]
  4. David E. Wildasin, 2005. "Fiscal Competition," Working Papers 2005-05, University of Kentucky, Institute for Federalism and Intergovernmental Relations. [Downloadable!]
  5. Wildasin, David E, 1995. " Factor Mobility, Risk and Redistribution in the Welfare State," Scandinavian Journal of Economics, Blackwell Publishing, vol. 97(4), pages 527-46, December.
  6. Devereux, Michael B, 1991. "The Terms of Trade and the International Coordination of Fiscal Policy," Economic Inquiry, Oxford University Press, vol. 29(4), pages 720-36, October.
  7. Andersen, Torben M. & Rasmussen, Bo Sandemann & Sorensen, Jan Rose, 1996. "Optimal fiscal policy in open economies with labour market distortions," Journal of Public Economics, Elsevier, vol. 63(1), pages 103-117, December. [Downloadable!] (restricted)
  8. Stephen J. Turnovsky, 1989. "The Gains from Fiscal Cooperation in the Two Commodity Real Trade Model," NBER Working Papers 2466, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Jonathan Coppel & Martine Durand, 1999. "Trends in Market Openness," OECD Economics Department Working Papers 221, OECD, Economics Department. [Downloadable!]
  10. Dani Rodrik, 1996. "Why Do More Open Economies Have Bigger Governments?," NBER Working Papers 5537, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Sinn, Hans-Werner, 1995. " A Theory of the Welfare State," Scandinavian Journal of Economics, Blackwell Publishing, vol. 97(4), pages 495-526, December.
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  12. Reuven Glick & Kenneth Rogoff, 1992. "Global versus country-specific productivity shocks and the current account," Working Papers in Applied Economic Theory 92-06, Federal Reserve Bank of San Francisco.
    Other versions:
  13. Jeffrey A. Frankel & Andrew K. Rose, 1996. "The Endogeneity of the Optimum Currency Area Criteria," NBER Working Papers 5700, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  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. [Downloadable!]
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