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Cultural Diversity, European Integration and the Welfare State

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  • Ugo Pagano

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Abstract

According to the “Neoclassical” approach, stemming from the Tiebout model, the main advantage of federalism lies in the possibility that individuals with similar tastes, including those related to risk-aversion and the provision of public goods, can cluster in the same jurisdictions. The starting point of this paper is a criticism of this approach. While the main advantage of federalism is related to the possibility of clustering heterogeneous individuals, the assumption of costless movement from one State to the other implicitly implies that individuals are homogeneous in some of other important characteristics. For instance, individuals, facing low mobility costs must have very minor cultural and linguistic differences. This hypothesis may approximate the U. S. situation but clashes with the case of European Union. Since Cultural-linguistic standardisation and the social protection can be regarded as two alternative insurance devices (one increasing the probability of alternative employment and the second providing some assistance in case of dismissal from the present employment) a culturally diverse Europe must necessary rely more on the Welfare State than the United States. The comparison with the U. S. clarifies the paradoxical problem of European integration. On the one hand, social protection is more necessary when cultural-linguistic differences make it expensive to cultural standardisation as a substitute for it. On the other hand, social insurance among different regions is more unlikely to be accepted when these cultural differences prevail. We argue that a possible way out of this dilemma is a system of mutual insurance among the European national welfare systems

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Paper provided by Department of Economics, University of Siena in its series Department of Economics University of Siena with number 414.

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Date of creation: Dec 2003
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Handle: RePEc:usi:wpaper:414

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  1. Giampaolo Arachi & Massimo D'Antoni, 2004. "Redistribution as Social Insurance and Capital Market Integration," International Tax and Public Finance, Springer, vol. 11(4), pages 531-547, 08.
  2. Samuel Bowles & Ugo Pagano, 2003. "Economic Integration, Cultural Standardization and the Politics of Social Insurance," Department of Economics University of Siena 408, Department of Economics, University of Siena.
  3. Alesina, Alberto & Spolaore, Enrico, 1997. "On the Number and Size of Nations," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1027-56, November.
  4. D'Antoni, Massimo & Pagano, Ugo, 2002. "National cultures and social protection as alternative insurance devices," Structural Change and Economic Dynamics, Elsevier, vol. 13(4), pages 367-386, December.
  5. Milgrom, Paul & Roberts, John, 1990. "The Economics of Modern Manufacturing: Technology, Strategy, and Organization," American Economic Review, American Economic Association, vol. 80(3), pages 511-28, June.
  6. Pagano, Ugo & Rowthorn, Robert, 1994. "Ownership, technology and institutional stability," Structural Change and Economic Dynamics, Elsevier, vol. 5(2), pages 221-242, December.
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