Finance and welfare states in globalizing markets

  • It is theoretically clear and may be verified empirically that efficient financial markets can make it less necessary for policy to try and offset the welfare effects of labour income risk and unequal consumption dynamics. The literature has also pointed out that, since international competition exposes workers to new sources of risk at the same time as it makes it easier for individual choices to undermine collective policies, international economic integration makes insurance-oriented government policies more beneficial as well as more difficult to implement. This paper reviews the economic mechanisms underlying these insights and assesses their empirical relevance in cross-country panel data sets. Interactions between indicators of international economic integration, of government economic involvement, and of financial development are consistent with the idea that financial market development can substitute public schemes when economic integration calls for more effective household consumption smoothing. The paper’s theoretical perspective and empirical evidence suggest that to the extent that governments can foster financial market development by appropriate regulation and supervision, they should do so more urgently at times of intense and increasing internationalization of economic relationships. JEL Classification: G1, E21

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Author:Giuseppe Bertola
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2007,31
Series (Serial Number):CFS working paper series (2007, 31)
Document Type:Working Paper
Year of Completion:2007
Year of first Publication:2007
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2007/11/02
Tag:finance; globalization; welfare state
GND Keyword:Internationalisierung; Finanzwirtschaft; Wohlfahrtsstaat
Issue:August 2007
Page Number:34
This paper was prepared for the Reserve Bank of Australia “Financial System: Structure and Resilience” conference. It is tightly related to past and ongoing joint work with Winfried Koeniger. This draft has benefitted from his comments and from presentation and discussion by Guy Debelle at the conference (Sydney, 21-22 August 2007). Valuable assistance by Luigi Bocola and Stella Capuano and support by the Reserve Bank of Australia and MIUR (PRIN 2005) are gratefully acknowledged.
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht