Welfare-State Remedy to Globalization and Aging Forces

Globalization, in the form of financial flows, which is always advantageous on an aggregative level, typically creates winners and losers, if left exclusively to market forces. The paper demonstrates that typical welfare-state redistribution policies, governed by a majority of the population, spreads the globalization’s gains from trade to all income groups, even those who are low skilled and have small capital endowments. Therefore, financial globalization of a welfare-state economy generates a Pareto improvement.