Welfare Policies, Labour Taxation and International Integration

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...

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Bibliographic Details
Published in:International tax and public finance 2003, Vol.10 (1), p.43-62
Main Author: Andersen, Torben M
Format: Article
Language:English
Subjects:
Consumption
Effects
Employment
Finance
Globalization
Households
International integration
Labor force
Labor market
Labour
Market
Mathematical models
Public finance
Public sector
Social security
Studies
Taxation
Taxes
Unemployment benefits
Welfare
Welfare policy
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Summary: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 common resource problem 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. Copyright 2003 by Kluwer Academic Publishers
ISSN:0927-5940
1573-6970
DOI:10.1023/A:1022276913056