ABSTRACT
This paper investigates the relationship between welfare state and capital flow management. Complementing the literature on the implications of financial globalization for social protection, we argue that the coverage and priorities of welfare states matter more than the amount of spending when it comes to the degree of capital account openness. In theoretical terms, this relationship is consistent with the protective and productive functions of welfare states. Empirically, correlational evidence based on macro-sociological data indicates that countries with more conservative approaches to welfare—those that prioritize pensions rather than the working-age population—tend to adopt higher levels of capital controls. In contrast, countries with more active labour market initiatives and more encompassing social protection tend to be less reliant on capital account restrictions. Case studies on Poland, Uruguay, and Chile provide further support to these findings. In a context shaped by recurrent financial instability, the paper encourages the view of welfare states as macro-prudential tools that allow states to conciliate the requirements of capital accumulation and the need for sociopolitical cohesion.