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

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  • Axel Dreher

    (Thurgau Institute of Economics and University of Konstanz)

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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Bibliographic Info

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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Web page: http://128.118.178.162

Related research

Keywords: globalization; economic policy; government expenditure; social spending; implicit tax rates; dynamic panel; tax competition;

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References

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  1. David Carey & Josette Rabesona, 2002. "Tax Ratios on Labour and Capital Income and on Consumption," OECD Economic Studies, OECD Publishing, vol. 2002(2), pages 129-174.
  2. Bretschger, Lucas & Hettich, Frank, 2000. "Globalisation, capital mobility and tax competition: Theory and evidence for OECD countries," Wirtschaftswissenschaftliche Diskussionspapiere 07/2000, Ernst Moritz Arndt University of Greifswald, Faculty of Law and Economics.
  3. 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.
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  8. Jan-Egbert Sturm & Bjørn Volkerink, 2003. "How to Measure the Tax Burden on Labour at the Macro-Level?," CESifo Working Paper Series 963, CESifo Group Munich.
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  16. Devereux, Michael P & Griffith, Rachel, 2002. "Evaluating Tax Policy for Location Decisions," CEPR Discussion Papers 3247, C.E.P.R. Discussion Papers.
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  21. Wilson, John Douglas & Wildasin, David E., 2004. "Capital tax competition: bane or boon," Journal of Public Economics, Elsevier, vol. 88(6), pages 1065-1091, June.
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