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Finance and welfare states in globalizing markets

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  • Bertola, Giuseppe

Abstract

It is theoretically clear and may be verified empirically that efficient financial markets can make it less necessary for policy to try and offset the welfare effects of labour income risk and unequal consumption dynamics. The literature has also pointed out that, since international competition exposes workers to new sources of risk at the same time as it makes it easier for individual choices to undermine collective policies, international economic integration makes insurance-oriented government policies more beneficial as well as more difficult to implement. This paper reviews the economic mechanisms underlying these insights and assesses their empirical relevance in cross-country panel data sets. Interactions between indicators of international economic integration, of government economic involvement, and of financial development are consistent with the idea that financial market development can substitute public schemes when economic integration calls for more effective household consumption smoothing. The paper's theoretical perspective and empirical evidence suggest that to the extent that governments can foster financial market development by appropriate regulation and supervision, they should do so more urgently at times of intense and increasing internationalization of economic relationships.

Suggested Citation

  • Bertola, Giuseppe, 2007. "Finance and welfare states in globalizing markets," CFS Working Paper Series 2007/31, Center for Financial Studies (CFS).
  • Handle: RePEc:zbw:cfswop:200731
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    Cited by:

    1. repec:hal:journl:halshs-00881198 is not listed on IDEAS
    2. Jappelli, Tullio & Pagano, Marco, 2008. "Financial market integration under EMU," CFS Working Paper Series 2008/33, Center for Financial Studies (CFS).
    3. Marco Buti & Alessandro Turrini & Paul Noord & Pietro Biroli, 2009. "Defying the ‘Juncker curse’: can reformist governments be re-elected?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 36(1), pages 65-100, February.
    4. Thibault Darcillon, 2013. "What Causes Labor-Market Volatility? The Role of Finance and Welfare State Institutions," Documents de travail du Centre d'Economie de la Sorbonne 13070, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.

    More about this item

    Keywords

    Finance; Welfare State; Globalization;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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