Welfare State Competition: True or False and give explanations. a) The selection principle holds if the government only insures risks that the private market is not able to ensure. b) If production factors can move across borders without costs, policy competition will erode the tax base and lead to less generous welfare states.

Answer

a) True. The selection principle holds if the government only insures risks that the private market is not able to ensure. b) True. If production factors can move across borders without costs, policy competition will erode the tax base and lead to less generous welfare states.

Q: What is the selection principle? A: The selection principle is the idea that a government should only insure risks that the private market is not able to, in order to prevent crowding out of the private market.
Q: Is statement a) true or false? A: True. The selection principle holds if the government only insures risks that the private market is not able to ensure.
Q: What is policy competition? A: Policy competition occurs when separate governments compete by offering different policies to the same unit of businesses, capital, and labor.
Q: Describe the impact of policy competition on welfare states when production factors can move across borders without costs. A: If production factors can move across borders without costs, policy competition will erode the tax base and lead to less generous welfare states.