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Welfare Policies, Labour Taxation and International Integration

Author

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  • Andersen, Torben M.

    () (Aarhus University)

Abstract

How will international integration affect welfare policies? This paper considers the possibilities of financing public sector activities (public consumption and social security expenses) by general (wage) taxation in an economy which becomes more integrated in international product markets. Even if labour is internationally immobile, the increased mobility of products and hence jobs implies a change in the distortions arising from taxes and social security contributions levied on labour income. Since financing of social security via general taxation involves a negative externality the effects of international integration depend critically on the institutional structure of the labour market. This paper shows that increased international integration inducing more product market competition implies that it becomes more costly to maintain welfare systems financed by general taxation.

Suggested Citation

  • Andersen, Torben M., 2001. "Welfare Policies, Labour Taxation and International Integration," IZA Discussion Papers 278, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp278
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    Keywords

    and public consumption.; social security; tax distortions; Product market integration;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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