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Social Insurance Competition between Bismark and Beveridge

  • Economics


bbrev6.PDF Social insurance competition between Bismarck and Beveridge1 Helmuth Cremer University of Toulouse (IDEI and GREMAQ)2 Pierre Pestieau CREPP, University of Liège, CORE and Delta3 February 2002, revised February 2003 1We thank the referees and the editor, Jan Brueckner, for their comments and suggestions. 2Corresponding author. Mailing address: IDEI, University of Toulouse, 21 Allée de Brienne, F–31000 Toulouse, France; e-mail: [email protected] 3Mailing address: CREPP, Université de Liège, 7 Bv du Rectorat, B–4000 Liège, Belgium; e-mail: [email protected] Abstract Social insurance schemes di¤er according to the relationship between contri- butions and bene…ts. Bismarckian systems provide earnings-related bene…ts, while Beveridgean systems o¤er ‡at payments. The conventional wisdom is that with factor mobility poor people have incentives to move towards Bev- eridgean countries. Consequently, Beveridgean regimes would not be sus- tainable under economic integration. This paper studies the validity of such a conjecture within a simple model. It is shown that mobility does have a signi…cant impact on social protection. However, the equilibrium patterns that can emerge are more complex and diversi…ed than the initial conjecture suggests. In some cases, the equilibrium may even imply that all the poor move to the Bismarckian country. JEL Classi…cations: H23, H70 Keywords: social insurance, tax competition, mobility, economic inte- gration. 1 Introduction Economic integration is often perceived as a threat to national redistributive policies. This allegation is widespread, in particular within the context of European construction. It does not only concern tax and transfer policies per se, but extends to social insurance systems at least as long as they involve some redistribution.1 Political scientists tend to classify social protection systems according to the relation between contributions and bene…ts. They distinguish three economic sys

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