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Welfare State, Market Imperfections and International Trade

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  • Hassan Molana
  • Catia Montagna

Abstract

Within a two-sector-two-country model of trade with aggregate scale economies and unionisation, a more generous welfare state in one country increases welfare in that country and can have positive spillover effects on the other. Furthermore, synchronised expansions of social security are more welfare enhancing than unilateral ones. Our results counter the fears that a race to the bottom in social standards may result from the ‘shrinking-tax-base’ entailed by international capital mobility. While affecting trade patterns and income distribution, capital mobility interacts with welfare state policies in increasing welfare, even when capital flows out of the country that initiates the shock. Copyright Springer Science+Business Media, LLC 2007
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Suggested Citation

  • Hassan Molana & Catia Montagna, 2003. "Welfare State, Market Imperfections and International Trade," Dundee Discussion Papers in Economics 146, Economic Studies, University of Dundee.
    • Handle: RePEc:dun:dpaper:146
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    References listed on IDEAS

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    1. Molana, Hassan & Montagna, Catia, 2006. "Aggregate scale economies, market integration, and optimal welfare state policy," Journal of International Economics, Elsevier, vol. 69(2), pages 321-340, July.
    2. Frederick Van der Ploeg, 2003. "Do Social Policies Harm Employment and Growth?," CESifo Working Paper Series 886, CESifo.
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    4. Crepaz, Markus M. L., 2002. "Duane Swank, Global Capital, Political Institutions, and Policy Change in Developed Welfare States. Cambridge University Press, Cambridge, 2002," Journal of Public Policy, Cambridge University Press, vol. 22(01), pages 101-106, January.
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    Cited by:

    1. Federica Calidoni, 2004. "Aggregate and Disaggregate Analysis of the Effects of Government Expenditure on Growth," Dundee Discussion Papers in Economics 160, Economic Studies, University of Dundee.

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    More about this item

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F1 - International Economics - - Trade
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining

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