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The existing literature on determinants of migration flows typically claims that income differences across countries should be a pushing factor for people's movement. We suggest that institutional quality is a better proxy for the factors that trigger migration. People may well want to stay in or move to relatively poor countries if institutions are good, partly because good institutions have an intrinsic value for people and partly because good institutions may be a sign of future economic growth. In contrast, low income and absolute poverty work both as push-factors and as credit constraints, so that people may want to leave, but few can afford to migrate when poverty is high. We test our hypotheses using new data on bilateral migration flows from Abel and Sander (2014), the Worldwide Governance Indicators and the World Bank data on headcount poverty, using a migration gravity model with a spatial specification. Controlling for both source and destination income levels, we find that institutional quality matters significantly for migration. Poor institutions act as a push factor, while absolute poverty in a country of origin limits migration. We also find that omitting spatial factors biases the effect of institutions upwards.

This paper asks whether the sensitivity of market long-term interest rates and credit ratings is associated with cross-country differences in informal institutions, measured by social trust. We note a number of theoretical mechanisms that could imply that similar objective problems are more likely to be effectively dealt with in higher-trust societies. A set of panel estimates across middle and high-income countries reveal that interest rates and ratings are substantially more sensitive to inflation and growth problems in low-trust countries. This finding sheds light on the differential market reactions to economic problems in seemingly comparable countries.

In most OECD-countries, immigrants have lower employment and higher unemployment than natives. This paper compares nine potential explanations of these gaps. Results are obtained for 21–28 countries using bivariate correlations, OLS-regressions and Bayesian model averaging over all 512 theoretically possible model specifications. Two robust patterns are found. The unemployment gap is bigger in countries where collective bargaining agreements cover a larger share of the labor market. The employment gap is bigger in countries with more generous social safety nets. Five variables have explanatory value in some specifications: Xenophobia, employment protection laws, social expenditure, asylum applications, and the share of immigrants in the population. The education of immigrants and migrant integration policies have no explanatory value. A trade-off seems to exist such that countries with smaller labor market gaps have higher income inequality.

This paper analyzes how the possibility to complement social income insurance schemes with private insurance affects the political support for social insurance. It is shown that political support for social insurance is weakly decreasing in the replacement rate. Policy makers seeking to maintain support for social insurance schemes can do so by lowering the replacement rate and allowing topping up contracts. The strategy is likely to be a partial explanation for the continued political support for welfare states with universal social insurance schemes such as those in Scandinavia.

The cross-country correlation between social trust and income equality is well documented, but few studies examine the direction of causality. We show theoretically that by facilitating cooperation, trust may increase efficiency and lead to more equal outcomes, while the feedback from inequality to trust is ambiguous. Using a structural equations model estimated on a large country sample, we find that trust has a positive effect on both market and net income equality. Larger welfare states lead to higher net equality but neither net income equality nor welfare state size seems to have a causal effect on trust. We conclude that while trust facilitates welfare state policies that may reduce net inequality, this decrease in inequality does not increase trust.

In this paper, we use data from a corruption survey conducted among top politicians and high level civil servants in 290 Swedish municipalities in 2007 to investigate the effects of government size on corruption. We construct several measures of corruption based on the survey, and combine these corruption measures with detailed administrative municipality level data to estimate the effect of local government resources on corruption. In cross-sectional analysis, we find a robust and negative association between total public expenditure and corruption. When we use lagged population growth rates and age structure as instruments for expenditure in 2-stage-least-squares regressions, the point estimates remain negative, but are no longer significant. In contrast with standard political economy models, where a bigger public sector is typically assumed to cause problems with corruption and public office abuse, our results suggest that corruption pressures may be particularly high when government resources are limited.

This paper discusses a number of questions with regard to Sweden’s economic and political development: How did Sweden become rich? What explains Sweden’s high level of income equality? What were the causes of Sweden’s problems from 1970 to 1995? How is it possible that Sweden, since the crisis of the early 1990s, is growing faster than most EU countries despite its high taxes and generous welfare state? These questions are analyzed using recent insights from institutional economics, as well as studies of inequality and economic growth. The main conclusion is that there is little, if any, Swedish exceptionalism: Sweden became rich because of well-functioning capitalist institutions, and inequality was low before the expansion of the welfare state. The recent favorable growth record of Sweden, including the period of financial stress (2008–2010), is a likely outcome of a number of far-reaching structural reforms implemented in the 1980s and 90s.

In a recent paper, Colombier (2009) uses a robust estimation technique and claims to find empirical evidence that government size has not been detrimental to growth for OECD countries during the 1970 to 2001 period, and that endogenous growth theory is not corroborated. We examine the robustness of these findings, and show that Colombier’s results differ from those in other recent papers not because of the estimator used, but because of the exclusion of other control variables. Adding time fixed effects to Colombier’s data set, and using the same econometric method, we obtain results in line with other findings, corroborating endogenous growth theory. Adding further control variables illustrates the robustness of the negative correlation between total tax revenue and economic growth for both instrumented and non-instrumented regressions.

The literature on the relationship between the size of government and economic growth is full of seemingly contradictory findings. This conflict is largely explained by variations in definitions and the countries studied. An alternative approach—of limiting the focus to studies of the relationship in rich countries, measuring government size as total taxes or total expenditure relative to GDP and relying on panel data estimations with variation over time—reveals a more consistent picture. The most recent studies find a significant negative correlation: An increase in government size by 10 percentage points is associated with a 0.5 to 1 percent lower annual growth rate. We discuss efforts to make sense of this correlation, and note several pitfalls involved in giving it a causal interpretation. Against this background, we discuss two explanations of why several countries with high taxes seem able to enjoy above average growth: (i) that countries with higher social trust levels are able to develop larger government sectors without harming the economy, and (ii) that countries with large governments compensate for high taxes and spending by implementing market-friendly policies in other areas. Both explanations are supported by current research.

We describe the policy consensus in the OECD publication Economic Surveys, by constructing a database that contains both quotations and a quantification of the perceived reform need for 23 OECD countries around 1985, 1995 and 2005. Using the database, we examine whether or not the policy recommendations given by the OECD require welfare state cutbacks. We also examine how reform need correlates with social expenditure and income inequality. The recommendations in OECD Economic Surveys describe a policy consensus based on competition, work incentives, monetary reform, fiscal discipline and labor market reform. Reforms in these areas do not necessarily require welfare state cutbacks. Quantitatively, we find a significant positive correlation between reform need and social expenditure only for the mid 1990s, and no significant correlations between reform need and inequality. We conclude that OECD countries with large welfare states have managed to implement reforms without substantial welfare state retrenchment. The policy recommendations in Economic Surveys imply a restructuring of the welfare state but not necessarily welfare state cutbacks.

Using cross-sectional data for 76 countries, we apply instrumental variable techniques based on pronoun drop, temperature and monarchies to demonstrate that historical trust levels predict several indicators of current welfare state design, including universalism and high levels of regulatory freedom. We argue that high levels of trust and trustworthiness are necessary, but not sufficient, conditions for societies to develop successful universal welfare states that would otherwise be highly vulnerable to free riding and fraudulent behavior. Our results do not exclude positive feedback from welfare state universalism to individual trust, although we claim that the important causal link runs from historically trust levels to current welfare state design.

Using data from the World Value Survey we examine first and second generation immigrants’ attitudes towards income inequality and redistribution. We find that first generation immigrants are on average less favorable to redistribution compared to non-immigrants. This effect is particularly pronounced in the Nordic welfare states, while in residual welfare states immigrants have stronger preferences for more government involvement, but not necessarily towards more redistribution. We find only marginal differences for second generation immigrants, suggesting a rather rapid adaptation of local norms and political preferences.

This paper analyzes the relation between three dimensions of globalization (economic, social and political) and life expectancy using a panel of 92 countries over the period 1970-2005. Using different estimation techniques and sample groupings we find a very robust positive effect from economic globalization on life expectancy, even when controlling for income, nutritional intake, literacy, number of physicians and several other factors. The result also holds when the sample is restricted to low income countries only. For political and social globalization we find no robust effects.

Using the newly developed KOF-index of globalization, as well as the economic freedom index from the Fraser institute, we examine if globalization and economic liberalizations are linked to increases in income inequality within countries. Studying changes between 1980 and 2000, we find a positive link between inequality and liberalization only for certain types of reforms: Trade liberalizations, deregulation of product and labor markets and economic globalization. The Scandinavian welfare states have increased economic freedom and globalization more than other countries, but they have also experienced high increases in income inequality.

In 1980, Sweden was a highly regulated economy with several state monopolies and low levels of economic freedom. Less than 20 years later, liberal reforms have turned Sweden into one of the worlds most open economies with a remarkable increase in economic freedom. While taxes and expenditure shares of GDP remain high, there has been a profound restructuring of Sweden’s economy in the 1980s and 1990s. Furthermore, the degree of political consensus is striking, both regarding the policies that characterized Sweden up to 1980, as well as the subsequent liberalizations. Since established theories have difficulties explaining institutional change in heavily institutionalized settings, we seek to understand how the Swedish style of policy-making produced this surprising political consensus on liberal reforms. Building on previous research, we underscore the importance of three complementary factors: (i) Policy-making in Sweden has always been influenced by, and intimately connected to, social science. (ii) Government commissions have functioned as ‘early warning systems’, pointing out future challenges and creating a common way to perceive problems. (iii) As a consequence from social science influence and the role of public investigations, political consensus has evolved as a specific feature of Swedish style of policy-making. The approach to policy-making has been rationalistic, technocratic and pragmatic. Thus, the political consensus in Sweden on substantial liberalizations is no more surprising than the political consensus on the development of the welfare state.

Using the economic freedom index and the newly developed KOF-index of globalization, it is shown that the Scandinavian welfare states have experienced faster, bigger and more consistent increases in these areas, compared to the smaller European and the so called liberal welfare states. The market economy and globalization hence do not pose threats to these welfare states, but are instead neglected factors in explaining their survival and good economic performance. Big government decreases the economic freedom index by definition, but the welfare states compensate in other areas, such as legal structure and secure property rights.

This paper evaluates the effects of public education expenditure on student enrollment in tertiary education. We use a cross-section of 132 countries to demonstrate that public expenditure on primary and secondary education positively affects tertiary enrollment rates, while the generosity of tertiary education subsidies themselves do not appear to have any signifcant impact on tertiary enrollment. The results presented are robust to various specifcations, and raise serious concerns regarding the within country allocation of public resources on education, which seems to be biased towards higher education, especially for less developed countries.

We analyze a cooperation game in an evolutionary environment. Agents make noisy observations of opponents’ propensity to cooperate, called reputation, and form preferences over opponents based on their reputation. A game takes place when two agents agree to play. Pareto optimal cooperation is evolutionarily stable when reputation perfectly reflects propensity to cooperate. With some reputation noise, there will be at least some cooperation. Individual concern for reputation results in a seemingly altruistic behavior. The degree of cooperation is decreasing in anonymity. If reputation is noisy enough, there is no cooperation in equilibrium.

The standard method when analyzing the problem of cooperation using evolutionary game theory is to assume that people are randomly matched against each other in repeated games. In this paper we discuss the implications of allowing agents to have preferences over possible opponents. We model reputation as a noisy observation of actual propensity to cooperate and illustrate how reputation based choice of opponents can explain both the emergence and deterioration of cooperation. We show that empirical and experimental evidence of cooperation is consistent with our hypothesis that people behave so as to minimize the risk of damaging their reputation as nice, cooperative persons.