International Integration, Risk and the Welfare State

Torben M. Andersen ()
Additional contact information
Torben M. Andersen: Aarhus University

No 456, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: 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 of product market integration reducing 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).

Keywords: Trade frictions; risk-sharing; optimal public consumption; social insurance (search for similar items in EconPapers)
JEL-codes: E30 F10 H11 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2002-03
New Economics Papers: this item is included in nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Published - published in: Scandinavian Journal of Economics, 2002, 104 (3), 343-364

Downloads: (external link)
https://docs.iza.org/dp456.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp456

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().