Welfare Policies, Labour Taxation and International Integration

Torben M Andersen ()
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Torben M Andersen: Aarhus University

No 278, IZA Discussion Papers from Institute for the Study of Labor (IZA)

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.

Keywords: and public consumption.; social security; tax distortions; Product market integration (search for similar items in EconPapers)
JEL-codes: F10 J30 H20 H30 (search for similar items in EconPapers)
Date: 2001-04
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Published in: International Tax and Public Finance, 2003, 10 (1), 43-62

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