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Cultural Diversity, European Integration and the Welfare State


  • Ugo Pagano



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

Suggested Citation

  • Ugo Pagano, 2003. "Cultural Diversity, European Integration and the Welfare State," Department of Economics University of Siena 414, Department of Economics, University of Siena.
  • Handle: RePEc:usi:wpaper:414

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    References listed on IDEAS

    1. Alberto Alesina & Enrico Spolaore, 1997. "On the Number and Size of Nations," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1027-1056.
    2. Giampaolo Arachi & Massimo D'Antoni, 2004. "Redistribution as Social Insurance and Capital Market Integration," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 11(4), pages 531-547, August.
    3. Pagano Ugo & Samuel Bowles, 2003. "Economic Integration, Cultural Standardization,and the Politics of Social Insurance," Working Papers wp64, Political Economy Research Institute, University of Massachusetts at Amherst.
    4. Milgrom, Paul & Roberts, John, 1990. "The Economics of Modern Manufacturing: Technology, Strategy, and Organization," American Economic Review, American Economic Association, vol. 80(3), pages 511-528, June.
    5. 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.
    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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    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • P51 - Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems

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