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The Welfare State, an Impediment to Integration?

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  • Uwe Walz
  • Dietmar Wellisch

Abstract

We investigate the consequences of redistribution policy on migration and trade in a standard two-good Heckscher-Ohlin framework. With free trade and factor prices equalization, abolishing migration barriers is redundant. With the introduction of government activity, matters change drastically. Redistributive policies create an incentive to migrate in the country providing higher transfers. We show that in such a world, free migration increases the burden of the welfare program in the rich country and causes suboptimal national redistribution policies in both countries. It is definitively in the interest of the rich country to stop short of a relaxation of migration barriers. Rather, a pure free trade regime without migration proves to be preferable.

Suggested Citation

  • Uwe Walz & Dietmar Wellisch, 1999. "The Welfare State, an Impediment to Integration?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 56(2), pages 218-218, June.
    • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(199906)56:2_218:twsait_2.0.tx_2-9
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    More about this item

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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