Working Paper: NBER ID: w24919
Authors: Assaf Razin; Efraim Sadka
Abstract: In this paper we review of literature and offer historical, empirical and analytical explanation for the interactions between the welfare state and globalization driving forces. Globalization – a widespread contemporaneous phenomenon – generates international tax competition. The consequent erosion in the tax base, especially on capital, is another blow to the finances of the welfare state. Financial globalization facilitates reallocation of capital across borders. The increased mobility of capital may likely to trigger a race-to-the-bottom tax competition. The consequent erosion in the tax base, especially on capital, is potentially a blow to the fiscal finance backing up the far-reaching redistribution of income by the typical welfare state. Another major aspect of globalization, 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 for young and high skill immigrants for its survival.
Keywords: No keywords provided
JEL Codes: F0; F15; F22; H2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Globalization (F60) | International tax competition (H26) |
| International tax competition (H26) | Erosion of the tax base (H26) |
| Erosion of the tax base (H26) | Decrease in social benefits (H55) |
| Mobility of capital (F20) | Inhibition of domestic taxation (H26) |
| Low-skill migration (J61) | Strain on the welfare state (I38) |
| High-skill migration (J61) | Support for the welfare state (I38) |
| Financial globalization (F65) | Shift of tax burden from mobile capital to immobile labor (H22) |
| Low-skill majority (F66) | Lower provision of social benefits (H53) |
| High-skill majority (J24) | Higher provision of social benefits (H55) |