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Does the Rise of China Lead to the Fall of European Welfare States?

Author

Listed:
  • Barth, Erling

    (Institute for Social Research, Oslo)

  • Finseraas, Henning

    (Norwegian University of Science and Technology (NTNU))

  • Kjelsrud, Anders

    (University of Oslo)

  • Moene, Karl Ove

    (University of Oslo)

Abstract

Have recent trends in globalization changed the positive link between trade openness and social insurance? The consensus view - that voters want better social insurance against income loss the more open the economy - is seemingly contested by the rise of populism and the China shock. We present a theoretical framework of risk and income effects of globalization that captures the conventional view, but also shows when it will be modified: When the income effect is negative, the political support for social insurance can decline in spite of the risk effect. We construct an empirical measure of welfare state support across European regions and leverage the rapid integration of China into the world economy to show that higher import competition reduces the support for social insurance. Consistent with our framework, we decompose the overall effect of the shock into a (weak) positive risk effect and a (strong) negative income effect.

Suggested Citation

  • Barth, Erling & Finseraas, Henning & Kjelsrud, Anders & Moene, Karl Ove, 2021. "Does the Rise of China Lead to the Fall of European Welfare States?," IZA Discussion Papers 14063, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp14063
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    More about this item

    Keywords

    trade exposure; social insurance; welfare state support; regional labor demand; China shock;
    All these keywords.

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F6 - International Economics - - Economic Impacts of Globalization

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