Expansionary Effects of the Welfare State in a Small Open Economy

Hassan Molana and Catia Montagna

CDMA Conference Paper Series from Centre for Dynamic Macroeconomic Analysis

Abstract: We examine the relationship between welfare state policies and economic performance in a small open economy with (i) free trade in final goods and international capital mobility, and (ii) aggregate increasing returns to scale. Contrary to the conventional wisdom, we find that a retrenchment of welfare programmes is not an inevitable consequence of economic integration. Instead, by improving the exploitation of aggregate scale economies, social expenditure policies and international openness complement each other in facilitating an improvement in economic performance that can sustain a more generous welfare protection.

Keywords: Welfare state; circular causation; international trade; capital mobility. (search for similar items in EconPapers)
JEL-codes: E6 F1 F4 H3 J5 (search for similar items in EconPapers)
Date: 2005-10
New Economics Papers: this item is included in nep-int and nep-pbe
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Journal Article: Expansionary effects of the welfare state in a small open economy (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:san:cdmacp:0505

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