Working Paper: CEPR ID: DP13106
Authors: Assaf Razin; Efraim Sadka
Abstract: Globalization - a widespread contemporaneous phenomenon - generates international tax competition. The consequent erosion in the tax base, especially on capital, is a blow to the finances of the welfare state, with far-reaching implications for the redistribution of income by the welfare state. Low skill migration attracted to the welfare state may put additional strain on it. An aging welfare state - a common contemporary phenomenon in many industrial countries - calls in for young and high skill immigrants for its survival. This review is about how economists should think about the connection between globalization and the welfare state, with strong motivating historical examples and empirical facts, and non-technical analytics.
Keywords: welfare state; globalization; tax competition; migration
JEL Codes: H00; F00
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| globalization (F60) | erosion of the tax base (H26) |
| erosion of the tax base (H26) | lower social benefits (H55) |
| low-skill immigration (K37) | sustainability of the welfare state (I31) |
| demographic changes (J11) | immigration policies (K37) |