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International Integration, Risk and the Welfare State
Author(s) -
Andersen Torben M.
Publication year - 2002
Publication title -
scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/1467-9442.00291
Subject(s) - economics , consumption (sociology) , product (mathematics) , endowment , welfare , welfare state , argument (complex analysis) , microeconomics , social insurance , state (computer science) , social welfare , market integration , marginal utility , public economics , market economy , biochemistry , chemistry , geometry , mathematics , epistemology , algorithm , sociology , politics , political science , computer science , law , social science , philosophy
How does international integration affect the welfare state? Does it call for a leaner or an expanded welfare state? International integration may affect the distortions caused by welfare state activities but also the risks motivating social insurance mechanisms. This paper addresses these potentially counteracting effects in a fully specified intertemporal two–country stochastic endowment model, focusing on the implications when product market integration reduces trade frictions across national product markets. It is shown that lower trade frictions may increase the marginal costs of public funds, which gives an argument for reducing (steady–state) public consumption. However, tighter integration of product markets unambiguously leads to more variability in private consumption, and this gives a case for expanding the social insurance provided via state–contingent public sector activities (automatic stabilizers). JEL classification : E 30; F 10; H 11