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International Integration, Risk and the Welfare State

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  • Andersen, Torben M.

    ()
    (Aarhus University)

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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 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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    Bibliographic 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: 28 pages
    Date of creation: Mar 2002
    Date of revision:
    Publication status: published in: Scandinavian Journal of Economics, 2002, 104 (3), 343-364
    Handle: RePEc:iza:izadps:dp456

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    Related research

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

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    1. Devereux, Michael B, 1991. "The Terms of Trade and the International Coordination of Fiscal Policy," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 29(4), pages 720-36, October.
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    3. Stockman, Alan C & Tesar, Linda L, 1995. "Tastes and Technology in a Two-Country Model of the Business Cycle: Explaining International Comovements," American Economic Review, American Economic Association, American Economic Association, vol. 85(1), pages 168-85, March.
    4. Reuven Glick & Kenneth Rogoff, 1992. "Global Versus Country-Specific Productivity Shocks and the Current Account," NBER Working Papers 4140, National Bureau of Economic Research, Inc.
    5. Rodrik, Dani, 1996. "Why do More Open Economies Have Bigger Governments?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1388, C.E.P.R. Discussion Papers.
    6. Wildasin, David E, 1995. " Factor Mobility, Risk and Redistribution in the Welfare State," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 97(4), pages 527-46, December.
    7. Sinn, Hans-Werner, 1995. " A Theory of the Welfare State," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 97(4), pages 495-526, December.
    8. Braconier, Henrik & Holden, Steinar, 1999. "The Public Budget Balance - Fiscal Indicators and Cyclical Sensitivity in the Nordic Countries," Working Paper, National Institute of Economic Research 67, National Institute of Economic Research.
    9. 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.
    10. Jonathan Coppel & Martine Durand, 1999. "Trends in Market Openness," OECD Economics Department Working Papers, OECD Publishing 221, OECD Publishing.
    11. David E. Wildasin, 2005. "Fiscal Competition," Working Papers, University of Kentucky, Institute for Federalism and Intergovernmental Relations 2005-05, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
    12. Dani Rodrik, 1997. "Has Globalization Gone Too Far?," Peterson Institute Press: All Books, Peterson Institute for International Economics, Peterson Institute for International Economics, number 57, July.
    13. Turnovsky, Stephen J., 1988. "The gains from fiscal cooperation in the two-commodity real trade model," Journal of International Economics, Elsevier, Elsevier, vol. 25(1-2), pages 111-127, August.
    14. 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, Elsevier, vol. 63(1), pages 103-117, December.
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    Cited by:
    1. Andersen, Torben M., 2004. "Challenges to the Scandinavian welfare model," European Journal of Political Economy, Elsevier, Elsevier, vol. 20(3), pages 743-754, September.
    2. König, Jan & Skupnik, Christoph, 2012. "Labor market integration of migrants: Hidden costs and benefits in two-tier welfare states," Discussion Papers, Free University Berlin, School of Business & Economics 2012/5, Free University Berlin, School of Business & Economics.
    3. Yu-Fu Chen & Holger Görg & Dennis Görlich & Hassan Molana & Catia Montagna & Yama Temouri, 2014. "Globalisation and the future of the welfare state," WWWforEurope Working Papers series, WWWforEurope 54, WWWforEurope.
    4. Michele Di Maio, 2006. "Uncertainty, Gains from Specialization and the Welfare State," Working Papers, Macerata University, Department of Finance and Economic Sciences 36-2006, Macerata University, Department of Finance and Economic Sciences, revised Oct 2008.

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