Assaf Razin will present the main findings of his recent paper "Welfare State vs. Market Forces in a Globalization Era".

Globalization radically changes income distribution, triggers intense international tax competition, and, consequently, entails the extensive restructuring of the welfare state. Financial globalization triggers tax completion, as countries attempt to avert its residents from shifting savings abroad to move to the low capital tax economies and high skill individuals emigrate to low labor tax economies. The launch of the European Union provides a "natural experiment" to identify the intensity of such tax competition because it created a single market with a movement of capital and labor. 
 

Professor Assaf Razin analyzes parsimonious model of an open economy, in its trade and finance transactions with the rest of the world, governed by voter-majority-controlled welfare state, subject to powerful tax competition forces. He comes to the conclusion that the welfare state boosts the utility of losers from globalization, regardless whether the skilled-rich or the unskilled poor govern its policies, or the factor supply and the saving propensity are the economy’s fundamentals.

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