A Race to the Middle: The Politics of Interstate Cost Distribution and Welfare State Expansion

Previous research on welfare state development in federal states has claimed that interstate competition induces a race to the bottom with regard to social expenditure. While existing research has focused on the impact of migration inflows of poor households on states with high provision of social expenditure, it has remained silent with regard to migration outflows. In this article, I argue that migration outflows are associated with increased social expenditure if eligibility restrictions for social benefits between states are relaxed. Facing outflows of workers and the unemployed, low-spending states respond with increases in social expenditure to retain a sufficient workforce and counteract rising wage levels. As a result, states with higher levels of outward migration are catching up with more generous states instead of engaging in a race to the bottom. To support my claim, I use a time-series cross-sectional data set of Swiss cantons covering the period 1930–75.