Does the Rise of China Lead to the Fall of European Welfare States?

Erling Barth, Henning Finseraas (), Anders Kjelsrud and Karl Ove Moene
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Henning Finseraas: Norwegian University of Science and Technology (NTNU)

No 14063, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Have recent trends in globalization changed the positive link between trade openness and social insurance? The consensus view - that voters want better social insurance against income loss the more open the economy - is seemingly contested by the rise of populism and the China shock. We present a theoretical framework of risk and income effects of globalization that captures the conventional view, but also shows when it will be modified: When the income effect is negative, the political support for social insurance can decline in spite of the risk effect. We construct an empirical measure of welfare state support across European regions and leverage the rapid integration of China into the world economy to show that higher import competition reduces the support for social insurance. Consistent with our framework, we decompose the overall effect of the shock into a (weak) positive risk effect and a (strong) negative income effect.

Keywords: trade exposure; social insurance; welfare state support; regional labor demand; China shock (search for similar items in EconPapers)
JEL-codes: F16 F6 H55 J21 J23 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2021-01
New Economics Papers: this item is included in nep-cna, nep-cwa, nep-ias, nep-int, nep-lma, nep-opm and nep-tra
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Working Paper: Does the Rise of China Lead to the Fall of European Welfare States? (2021)
Working Paper: Does the Rise of China Lead to the Fall of European Welfare States? (2021)
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