Working Paper: NBER ID: w27239
Authors: Assaf Razin; Efraim Sadka; Alexander Horst Schwemmer
Abstract: Globalization is expected to be reversed, at least partially, in the post pandemic era. The Great Financial Recession of 2008–10 marked a historic turning point in the direction of weakening the degree of global economic integration. Now, in the post-pandemic era, policymakers appear poised to take deliberate steps to reinforce the movement toward de-globalization. At the same time, safety nets are expected to be strengthened. In this paper, we develop a model, with which we analyze central macroeconomic interactions between globalization and safety nets. We put together stylized elements of trade globalization, financial globalization, international tax competition, immigration, and welfare state, all in a two-skill, two-period stylized model, where policy (taxes and social benefits) is determined through majority voting.
Keywords: globalization; safety nets; COVID-19; macroeconomic analysis
JEL Codes: F15; H2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| COVID-19 pandemic (H12) | retreat from globalization (F69) |
| retreat from globalization (F69) | strengthening of social safety nets (I38) |
| increased trade globalization (F69) | changes in domestic factor prices (F16) |
| changes in domestic factor prices (F16) | adjustments in savings and capital formation (F32) |
| changes in world prices (F69) | domestic factor prices (F16) |
| higher trade globalization intensity (F69) | reallocation of resources (D61) |
| reallocation of resources (D61) | impact on income inequality (F61) |
| tax competition driven by globalization (F64) | shift of tax burden (H22) |
| shift of tax burden (H22) | influence on welfare state dynamics (P16) |