The Welfare State and Competitiveness

Posted: 11 May 1998

See all articles by Alberto F. Alesina

Alberto F. Alesina

Harvard University - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Roberto Perotti

Bocconi University - Department of Economics; European University Institute - Economics Department (ECO); Centre for Economic Policy Research (CEPR)

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Abstract

In all industrial countries, fiscal policy is increasingly about redistribution. In this paper, we study redistribution across different types of agents in a world characterized by the presence of labor unions and distortionary taxation. We show that an increase in transfers financed by distortionary taxation has nonlinear effects on unit labor costs relative to the other countries, depending on the degree of centralization of the wage- setting process in the labor market. We find considerable empirical support for the model in a sample of 14 OECD countries.

JEL Classification: E6, F4, H3, J5

Suggested Citation

Alesina, Alberto F. and Perotti, Roberto, The Welfare State and Competitiveness. Available at SSRN: https://ssrn.com/abstract=75588

Alberto F. Alesina (Contact Author)

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States
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Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER)

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Roberto Perotti

Bocconi University - Department of Economics ( email )

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European University Institute - Economics Department (ECO) ( email )

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Italy

Centre for Economic Policy Research (CEPR)

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United Kingdom

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