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The Welfare State and Competitiveness

  • Perotti, Roberto
  • Alesina, Alberto
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    In all industrial countries, fiscal policy is increasingly about redistribution. In this paper, we study redistribution across different types of agents in a world characterized by the presence of labor unions and distortionary taxation. We show that an increase in transfers financed by distortionary taxation has nonlinear effects on unit labor costs relative to the other countries, depending on the degree of centralization of the wage-setting process in the labor market. We find considerable empirical support for the model in a sample of 14 OECD countries.

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    File URL: http://dash.harvard.edu/bitstream/handle/1/4553027/alesina_welfarestate.pdf
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    Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 4553027.

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    Date of creation: 1997
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    Publication status: Published in American Economic Review
    Handle: RePEc:hrv:faseco:4553027
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