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The Influence of Globalization on Taxes and Social Policy – an Empirical Analysis for OECD Countries

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Author Info
Axel Dreher (Thurgau Institute of Economics and University of Konstanz)

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Abstract

Using panel regression for the period 1970-2000 the paper analyzes whether globalization has influenced the OECD countries’ social and overall spending as well as their tax rates on labor, consumption and capital. Accounting for potential endogeneity of the regressors, the results show that globalization (measured by an index covering 23 variables) did not generally decrease the leeway for independent economic policy. Globalization even increased implicit tax rates on capital (as calculated by Carey and Rabesona 2002) – a result that is mainly driven by economic integration. However, there seems to be competition over tax rates on capital when data based on legislation as suggested by Devereux and Griffith (2003) is employed. Depending on the method of estimation, increasing social integration also influences policies, while political integration does not matter for economic policy in most specifications.

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Paper provided by EconWPA in its series Public Economics with number 0310002.

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Date of creation: 16 Oct 2003
Date of revision: 27 Feb 2004
Handle: RePEc:wpa:wuwppe:0310002

Note: Type of Document - . University of Exeter Discussion Paper in Economics
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Related research
Keywords: globalization; economic policy; government expenditure; social spending; implicit tax rates; dynamic panel; tax competition;

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Find related papers by JEL classification:
H7 - Public Economics - - State and Local Government; Intergovernmental Relations
H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Heinemann, Friedrich, 1999. "Does globalization restrict budgetary autonomy? : A multidimensional approach," ZEW Discussion Papers 99-29, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  2. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Blackwell Publishing, vol. 58(2), pages 277-97, April. [Downloadable!] (restricted)
  3. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 1999. "A new database on financial development and structure," Policy Research Working Paper Series 2146, The World Bank. [Downloadable!]
  4. Günther G. Schulze & Heinrich W. Ursprung, 1999. "Globalisation of the Economy and the Nation State," The World Economy, Blackwell Publishing, vol. 22(3), pages 295-352, 05. [Downloadable!] (restricted)
  5. Garrett, Geoffrey, 1995. "Capital Mobility, Trade, and the Domestic Politics of Economic Policy," International Organization, MIT Press, vol. 49(4), pages 657-87, Autumn.
  6. Enrique G. Mendoza & Assaf Razin & Linda L. Tesar, 1995. "Effective Tax Rates in Macroeconomics: Cross-Country Estimates of Tax Rates on Factor Incomes and Consumption," NBER Working Papers 4864, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Devereux, Michael P & Lockwood, Ben & Redoano, Michela, 2002. "Do Countries Compete Over Corporate Tax Rates?," The Warwick Economics Research Paper Series (TWERPS) 642, University of Warwick, Department of Economics. [Downloadable!]
    Other versions:
  8. Garrett, Geoffrey, 1995. "Capital mobility, trade, and the domestic politics of economic policy," International Organization, Cambridge University Press, vol. 49(04), pages 657-687, September. [Downloadable!]
  9. M. Peter van der Hoek, 2003. "Tax Harmonization and Competition in the European Union," Taxation eJournal of Tax Research , ATAX, University of New South Wales. [Downloadable!]
  10. Razin, Assaf & Sadka, Efraim & Swagel, Phillip, 2002. "Tax burden and migration: a political economy theory and evidence," Journal of Public Economics, Elsevier, vol. 85(2), pages 167-190, August. [Downloadable!] (restricted)
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  11. Bretschger, Lucas & Hettich, Frank, 2002. "Globalisation, capital mobility and tax competition: theory and evidence for OECD countries," European Journal of Political Economy, Elsevier, vol. 18(4), pages 695-716, November. [Downloadable!] (restricted)
  12. Axel Dreher, 2002. "Does Globalization Affect Growth?," Development and Comp Systems 0210004, EconWPA, revised 04 Feb 2003. [Downloadable!]
  13. Friedrich Heinemann, 2000. "Does globalization restrict budgetary autonomy?," Intereconomics: Review of European Economic Policy, Springer, vol. 35(6), pages 288-298, November. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Axel Dreher & Tim Krieger, 2004. "Do gasoline prices converge in a unified Europe with non- harmonized tax rates?," International Finance 0411005, EconWPA. [Downloadable!]
    Other versions:
  2. Antonio Sciala' & Paolo Liberati, 2008. "The impact of economic openness on the vertical structure of the public sector," "Marco Fanno" Working Papers 0085, Dipartimento di Scienze Economiche "Marco Fanno". [Downloadable!]
  3. Christian Bjørnskov & Axel Dreher & Justina A.V. Fischer, 2005. "Cross-Country Determinants of Life Satisfaction: Exploring Different Determinants across Groups in Society," University of St. Gallen Department of Economics working paper series 2005 2005-19, Department of Economics, University of St. Gallen. [Downloadable!]
    Other versions:
  4. Axel Dreher, 2006. "Power to the People? The Impact of Decentralization on Governance," Working papers 06-121, KOF Swiss Economic Institute, ETH Zurich. [Downloadable!]
  5. Andreas Haufler & Alexander Klemm & Guttorm Schjelderup, 2008. "Economic integration and the relationship between profit and wage taxes," Working Papers 0810, Oxford University Centre for Business Taxation. [Downloadable!]
    Other versions:
  6. Ronald B. Davies & Johannes Voget, 2008. "Tax Competition in an Expanding European Union," Working Papers 0830, Oxford University Centre for Business Taxation. [Downloadable!]
    Other versions:
  7. Peter Schwarz, 2007. "Does capital mobility reduce the corporate-labor tax ratio?," Public Choice, Springer, vol. 130(3), pages 363-380, March. [Downloadable!] (restricted)
  8. Axel Dreher & Tim Krieger, 2007. "Diesel price convergence and mineral oil taxation in Europe," Working Papers 5, University of Paderborn, CIE Center for International Economics. [Downloadable!]
    Other versions:
  9. Axel Dreher & Noel Gaston, 2006. "Has globalization increased inequality?," Working papers 06-140, KOF Swiss Economic Institute, ETH Zurich. [Downloadable!]
  10. Nelly Exbrayat, 2008. "The Impact of Trade Integration and Agglomeration Economies on Tax Interactions : Evidence from OECD Countries," Post-Print hal-00270067_v1, HAL. [Downloadable!]
  11. Axel Dreher & Noel Gaston, 2005. "Has globalisation really had no effect on unions?," Working papers 05-110, KOF Swiss Economic Institute, ETH Zurich. [Downloadable!]
    Other versions:
  12. Christian Bjørnskov & Axel Dreher & Justina A. V. Fischer, 2005. "The bigger the better? Evidence of the effect of government size on life satisfaction around the world," Economics working paper series 05/44, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich. [Downloadable!]
    Other versions:
  13. Holger Görg & Hassan Molana & Catia Montagna, 2007. "Foreign Direct Investment, Tax Competition and Social Expenditure," Discussion Papers 198, University of Dundee, Economic Studies. [Downloadable!]
    Other versions:
  14. Carone, Giuseppe & Nicodème, Gaëtan & Schmidt, Jan, 2007. "Tax revenues in the European Union: Recent trends and challenges ahead," MPRA Paper 3996, University Library of Munich, Germany. [Downloadable!]
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