Welfare Migration: Is the Net Fiscal Burden a Good Measure of its Economic Impact on the Welfare of the Native-Born Population?

Migration of young workers (as distinct from retirees), evenwhen driven in by the generosity of the welfare state, slowsdown the trend of increasing dependency ratio. But, even thoughlow-skill migration improves the dependency ratio, it neverthelessburdens the welfare state. Recent studies by Smith and Edmonston(1977), and Sinn et al. (2003) comprehensively estimate thefiscal burden that low-skill migration imposes on the fiscalsystem. However an important message of this paper is that inan infinite-horizon set-up, one cannot fully grasp the implicationsof migration for the welfare state, just by looking at the netfiscal burden that migrants impose on the fiscal system. Inan infinite-horizon, overlapping generations economy, this netburden, could change to net gain to the native born population.(JEL F22, H3, J10)     

EU Enlargement, Migration and the New Constitution

The paper deals with the effects of migration resulting fromEU Eastern enlargement on the welfare states of Western Europe.Although migration is good in principle, as it yields gainsfrom trade and specialization for all countries involved, itdoes so only if it meets with flexible labour markets and ifit is not artificially induced by gifts of the welfare state.This is not the present state of affairs in Western Europe.In addition to measures that make labour markets more flexible,the introduction of delayed integration of working migrantsand the home country principle for nonworking migrants is arational reaction of the state. The proposed new EU constitution,which contains far-reaching rules for a European social union,should be amended accordingly. (JEL E2, F2, H0, J3, J6)     

Welfare Leakage and Immigration Policy

This paper analyzes the interaction between the welfare stateand immigration policy. We establish a negative relationshipbetween the number of dependents and the extent of the welfarestate due to the leakage of benefits. We also explain the determinationof immigration policy as the outcome of a lobbying game betweendomestic interest groups and the government. Our results indicatethat there is evidence for welfare leakage and for lobbyingas a determinant of immigration policy. In our baseline specification,a 10 percentage points increase in the share of dependents leadsto a 7–10 percentage point decrease in the labor tax rate.Furthermore, an increase by 10 percentage points in union densityleads to a decrease of one percentage point in the share ofimmigrants in the population. In the context of EU enlargementand the ensuing migration flows, our model predicts a reductionin the size of the welfare state in the old member countries.(JEL H5, J1, J61)     

Commentary. 'Work first': workfare and the regulation of contingent labour markets

The paper presents a critical review of UK and US welfare-to-workstrategies, stressing their implications for changing formsof labour regulation. The favoured policy orientation - 'workfirst' - forcefully redistributes the risks and burdens of job-marketinstability from the state to unemployed individuals, the solutionto whose 'welfare dependency' is presented in terms of a one-waytransition into (low) waged work. At a systemic level, the analysissuggests that a regressive regulatory accommodation may be emergingbetween mandatory welfare-to-work programming on the one handand the lowest reaches of deregulated, 'flexible' labour marketson the other, as the destabilisation of welfare via work-activationmeasures creates a forced labour supply for contingent jobs.     

Efficiency and Equality in the Labour Market

I review theoretical arguments suggesting that certain labourmarket institutions can be justified for economic efficiencyreasons. In models with intrinsic market failures, "rigidities"like employment protection legislation and institutional wagecompression may push the economy closer to the efficient frontier.I discuss recent empirical evidence on income inequality, povertyand income mobility in OECD countries, and I conclude that thewelfare states of Northern Europe score relatively well on allcounts. Finally, I discuss labour market reforms that may improveefficiency without violating European voters' preference forequality.(JEL H30, J30, J50)     

Automatic Fiscal Stabilisers in EMU: A Conflict between Efficiency and Stabilisation?

It is often claimed that tax and welfare reforms that aim atenhancing efficiency may come at the cost of cyclical stabilisation.Reducing the generosity of welfare systems and lowering taxesmay boost efficiency and output, and improve market adjustmentto shocks. But, by reducing the size of automatic stabilisers,it may also imply less cyclical smoothing. This would be unwelcomein EMU given the loss of national monetary autonomy and thewell-known pitfalls of active fiscal management. This paperargues that the alleged trade-off between efficiency/flexibilityand stabilisation may not exist. We show that, if the initiallevel of the tax burden is high, reducing it may lead to higheroutput stabilisation in the event of a supply shock and higherinflation stabilisation in the event of a demand shock. Simulationsshow that European countries - especially small ones - mighthave a tax burden close to or even higher than the thresholdlevel. (JEL E52, E61, F42)     

Review article. Kalecki on imperfect competition, inflation and money

This paper reviews the final two volumes of Kalecki's CollectedWorks. It first discusses, based on the papers in Vol. VI, hiscontributions on cartels, on Nazi Germany, the development ofindices of business fluctuations and of national income accounts,and the movement of prices and costs over the business cycle.Drawing on the papers reproduced in Vol. VII, this paper continuesby discussing Kalecki's writings on rationing, inflation, imperfectcompetition and unemployment, money and finance, the nationaldebt and the welfare state, international economic arrangements,the post-war American economy and econometrics and methodology.     

International Integration, Risk and the Welfare State

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 when product market integration reduces 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). JEL classification: E30; F10; H11     

Capital controls and welfare

This paper computes welfare levels under different degree of capital controls and compares them with the welfare level under perfect capital mobility by using the methodology of Schmitt-Grohé and Uribe (2007). We show that perfect capital mobility is not always optimal and that capital controls may enhance an economy’s welfare level. There exists an optimal degree of capital-account restriction that achieves a higher level of welfare than that under perfect capital mobility, if the economy has costly financial intermediaries. The results of our analysis imply that as the domestic financial intermediaries are less efficient, the government should impose stricter capital controls in the form of a tax on foreign borrowing.     

Educating Europe: Should Public Education be Financed with Graduate Taxes or Income-contingent Loans?

The mobility of labor reduces national incentives to investin internationally applicable education. The European Unioncould overcome this by allowing member states to institute graduatetaxes or income-contingent loans, collected also from migrants.Graduate taxes or income-contingent loans result in higher welfarethan financing education with employment-based taxes. (JEL H24,H52, I28, F22)     

Keynesian Economics, Monetary Policy and the Business Cycle - New and Old

After a brief review of the main differences between New andOld Keynesian economics from the sixties this paper focuseson a tension between traditional sluggish measures of potentialoutput commonly used by policymakers and the New Keynesian (NK)notion of this variable which conceptualizes it as the levelof output that would have been produced under perfect competitionhad all prices and wages been flexible. The paper shows that,under monopolistic competition, NK potential output is oftenmore volatile than the level of output produced under stickyprices and wages implying either of the following. Real lifepolicymakers mistakenly target smooth versions of output or(since actual economies are monopolistically rather than perfectlycompetitive) the flexible price and wage equilibrium does notnecessarily maximize welfare. The paper shows, that dependingon the shape of the utility function and of the distributionof productivity shocks either case is possible and proposesa criterion for discriminating between them. (JEL E3, E4, E5,E6)     

The Household, Time Use and Tax Policy

This paper is concerned with modelling household decisions andthe welfare effects of tax policy. It seeks to emphasise theimportance of a model that incorporates household productionand can take account of the evident female labour supply heterogeneityacross two-parent families. If, after having children, someproportion of households substitute domestic for market laboursupply, the income and consumption variables used as the taxbase in most countries may be poorly correlated with livingstandards. Taxes and welfare programs based on these variablesmay increase inequality by shifting the overall tax burden tolow and middle wage families with both partners in work, awayfrom families with much higher wages and in which only one memberworks to earn the same joint market income. The paper combinesdata on time use, income, taxes and benefits to show how theytrack female labour supply over the life cycle, resulting inmuch higher tax burdens on two-earner households. (JEL D13,D91, H31, J22)     

National labor markets, international factor mobility and macroeconomic instability

We consider a standard two-country environment, where one of the two countries has a rigid labor market, and analyze how global economic integration affects the economies with respect to expectations-driven cycles and steady state welfare. We show that by allowing free capital mobility, equilibrium indeterminacy is exported from the rigid wage country to the world economy. If further liberalization is permitted, by allowing free movements of labor, the scope for indeterminacy is reduced and open labor markets may produce a stabilizing effect on the global macro-economy. Whether this also implies higher welfare in the long run depends on differentials in average firm size across countries, which determines the direction of migration flows.     

Coming to the Nuisance: An Economic Analysis from an Incomplete Contracts Perspective

We construct a model in which an investment opportunity arisesfor a first mover before it knows the identity of a second moverand in which joint location results in a negative externality.Contracts are inherently incomplete since the first mover cannotbargain over its ex ante investment decision with the anonymoussecond mover. Given this departure from the setting of the Coasetheorem, the allocation of property rights over the externalityhas real effects on social welfare. We investigate the relativeefficiency of property rights regimes used in practice: injunctions,damages, the ruling in the Spur Industries case, etc. The firstbest can be obtained by allocating property rights (in particularthe right to sue for damages) to the second mover. Allocatingproperty rights to the first mover, as a "coming to the nuisance"rule entails, leads to overinvestment. In contrast to conventionalwisdom, this inefficiency persists even if a monopoly landownercontrols all the land on which the parties may locate.     

Foreign Aid under Quantitative Restrictions: Welfare Effects and International Factor Mobility

Using a two‐country, general‐equilibrium model of international trade, this paper incorporates pre‐existing quantitative trade restrictions and international factor mobility into the transfer problem analysis. The effects of foreign aid on the welfare of both the donor and recipient nations are identified under each form of quantitative trade restriction: quotas and voluntary export restraints (VERs). In doing so, this paper identifies conditions under which international transfers are strictly Pareto‐improving (i.e. increase global welfare). A central result of this analysis is the direct welfare effect of a transfer received by a nation with quota‐constrained (VER‐constrained) imports is enhanced (may be enhanced) by a worsening of the recipient’s terms of trade.     

U.S. Welfare Reform: What's Relevant for Europe?

This paper reviews the U.S. welfare reform efforts over the1990s and the effects of these reforms to date. Seven "lessons"of potential interest to European observers are discussed, withparticular attention to the conclusions of more recent research.Such research indicates, for example, that more effective programscontain both positive and negative incentives, utilise work-firstas well as job training programs, and provide some importantsupports beyond just job and work skills. The paper ends withsome speculations about why European policy-makers are becomingmore interested in U.S. welfare reform experiments than theyhave been in the past. (JEL I3, J2, H1)     

On the growth and welfare effects of monopolistic distortions

The most fundamental proposition about growth and competition is that there is a tradeoff between static welfare and long-term growth. This paper reconsiders this basic proposition in an expanding variety endogenous growth model with competitive markets for “old” innovative products and for a traditional good. We shed light on some implications of monopolistic distortions which tend to be ignored by standard models. First, no growth may be better than some growth, since modest positive growth potentially requires sizeable static welfare losses. Second, the economy may converge to a steady state with zero growth, even though a locally saddle-point stable steady state with positive growth exists if the initial share of “cheap” competitive markets is sufficiently high, as this implies a relatively low demand for “expensive” innovative goods. Third, such a “no-growth trap” may happen in a world economy made up of several countries engaged in free trade with each other. The policy implications are that growth-enhancing policies may be misguided and that quick deregulation as well as quick trade liberalization can lead to stagnation in the long term.      

Better off stateless: Somalia before and after government collapse

Could anarchy be good for Somalia's development? If state predation goes unchecked government may not only fail to add to social welfare, but can actually reduce welfare below its level under statelessness. Such was the case with Somalia's government, which did more harm to its citizens than good. The government's collapse and subsequent emergence of statelessness opened the opportunity for Somali progress. This paper investigates the impact of anarchy on Somali development. The data suggest that while the state of this development remains low, on nearly all of 18 key indicators that allow pre- and post-stateless welfare comparisons, Somalis are better off under anarchy than they were under government. Renewed vibrancy in critical sectors of Somalia's economy and public goods in the absence of a predatory state are responsible for this improvement. Journal of Comparative Economics 35 (4) (2007) 689–710.     

Colonialism,Postcolonialism and the Liberal Welfare State

ABSTRACT

This article addresses the colonial and racial origins of the welfare state with a particular emphasis on the liberal welfare state of the USA and UK. Both are understood in terms of the centrality of the commodified status of labour power expressing a logic of market relations. In contrast, we argue that with a proper understanding of the relations of capitalism and colonialism, the sale of labour power as a commodity already represents a movement away from the commodified form of labour represented by enslavement. European colonialism is integral to the development of welfare states and their forms of inclusion and exclusion which remain racialised through into the twenty-first century.