Austerity Breeds Financial Protectionism: How Welfare Shapes Capital Controls
Our research reveals that a country's financial openness depends on who its welfare state protects. Nations investing in workers maintain open borders, while those focusing on pensions enforce strict capital controls. Broad social coverage acts as a buffer against global finance shocks, whereas narrow protection forces governments to restrict money flows to ensure stability.
Where redistribution runs vertically and broadly, the welfare state absorbs global finance shocks. Where it runs horizontally, governments buy stability at the financial border.