Welfare State, Inequality, and Globalization: Role of International-capital-flow Direction / Assaf Razin, Efraim Sadka.

Format:

Book

Author/Creator:

Razin, Assaf.

Contributor:

National Bureau of Economic Research.

Sadka, Efraim.

Series:

Working Paper Series (National Bureau of Economic Research) no. w25772.

NBER working paper series no. w25772

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Welfare State, Inequality, and Globalization

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2019.

Summary:

Globalization, in the form of financial flows, which is always advantageous on an aggregative level, typically creates winners and losers, if left exclusively to market forces. The effects of financial globalization on income inequality depends on whether the country exports its capital to the rest of the world or imports capital from abroad. In the capital-exporting case, financial globalization drives up return to savings and drives down wages. In the capital-importing case, financial globalization tends to raise wages but lower return on savings. Therefore, the distributive policies of the welfare state in its role of spreading the gains from financial globalization to various income groups varies, depending on whether the country exports, or imports capital. The paper demonstrates that typical welfare-state redistribution policies, governed by a majority of the population, spreads the globalization's gains from trade to all income groups, even those who are low skilled and have small capital endowments. Therefore, financial globalization of a welfare- state economy generates a Pareto improvement. At the same time, globalization, through enhanced capital mobility and high-skill emigration diminishes the generosity of the welfare state.

Notes:

Print version record

April 2019.