Cumulative causation, capital mobility and the welfare state

Hassan Molana, Catia Montagna

    Research output: Working paperDiscussion paper

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    Within a small open economy with vertical linkages, welfare state policies trigger a virtuous circle of cumulative causation that will lead to higher levels of economic activity by improving the exploitation of potential aggregate scale economies. Capital mobility is typically found to reinforce this mechanism and the use of capital taxation to finance redistribution policies is not found to alter these conclusions. These results, consistent with the evidence that welfare states and tax burden have not significantly reduced in OECD countries, challenge the conventional wisdom that globalisation undermines governments’ ability to pursue income redistribution.
    Original languageEnglish
    PublisherUniversity of Dundee
    Publication statusPublished - 2002

    Publication series

    NameDundee Discussion Papers in Economics
    PublisherUniversity of Dundee
    ISSN (Print)1473-236X


    • Welfare state
    • Circular causation
    • International trade
    • Capital mobility

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