TY  - RPRT
        AU  - Andersen, Torben M.
        TI  - International Integration, Risk and the Welfare State
        PY  - 2002/Mar/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 456
        UR  - https://www.iza.org/publications/dp456
        AB  - How does international integration affect the welfare state? Does it call for a leaner or an
expanded welfare state? International integration may affect the distortions caused by
welfare state activities but also the risks motivating social insurance mechanisms. This paper
addresses these potentially counteracting effects in a fully specified intertemporal two-country
stochastic endowment model focusing on the implications of product market
integration reducing trade frictions across national product markets. It is shown that lower
trade frictions may increase the marginal costs of public funds, which gives an argument for
reducing (steady-state) public consumption. However, tighter integration of product markets
unambiguously leads to more variability in private consumption, and this gives a case for
expanding the social insurance provided via state-contingent public sector activities
(automatic stabilizers).
        KW  - Trade frictions
KW  - risk-sharing
KW  - optimal public consumption
KW  - social insurance
        ER  -