This paper presents a model allowing to analyze voting, welfare institutions and economic
performance. We consider a political economy framework with three classes of agents:
entrepreneurs, employed workers and unemployed workers. Agents vote on alternative
institutional options: the degree of labour market flexibility and the intensity of redistribution.
We show that the welfare state configuration depends on the nature of the political system - majoritarian, coalition, two-party. Because internationalization reduces the possibility for
national government to effectively tax profits, the existing political coalition is fragilized by the
process of globalization. The model generates results concerning the macroeconomic
equilibrium employment level. Hence we can assess the effects of internationalization on
macroeconomic performance. The impact of internalization depends on the nature of the
political system (majoritarian versus coalition government) and on the institutional
configuration (positive flexibility versus positive redistribution).
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