Globalization, Integration, and the European Welfare State

This paper considers three challenges to the mature European welfare states posed by economic and social integration, demographic changes, and the alleged decline of state capacity in the form of fiscal extraction in an era of globalization. I argue that the experiences of the older member states in the European Union are difficult to reconcile with the common assertions that globalization necessarily leads to a “race to the bottom” where welfare spending is downsized to the lowest common denominator. I develop a set of hypotheses on plausible linkages between demographic challenges, globalization, political capacity, and welfare spending, and test the propositions in an empirical analysis of 14 European Union member states from 1983 to 1998. My empirical results suggest that economic integration does not pose a threat to European welfare states. Rather, demographic changes such as low fertility rates and the aging of the population and their political implications for political leaders’ incentives are more serious challenges for the continuation of the welfare state in Europe.