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Globalisation squeezes the public sector—is it so obvious?

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  • Torben Andersen

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  • Allan Sørensen

Abstract

It is widely perceived that globalization squeezes public sector activities by making taxation more costly. This is attributed to increased factor mobility and to a more elastic labour demand due to improved scope for relocation of production and thus employment across countries. We argue that this consensus view overlooks that gains from trade unambiguously work to lower the marginal costs of public funds, and moreover that globalization via increased trade in intermediaries may actually lower the labour demand elasticity.
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Suggested Citation

  • Torben Andersen & Allan Sørensen, 2011. "Globalisation squeezes the public sector—is it so obvious?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 18(4), pages 369-382, August.
  • Handle: RePEc:kap:itaxpf:v:18:y:2011:i:4:p:369-382
    DOI: 10.1007/s10797-011-9166-z
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    References listed on IDEAS

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    11. Assaf Razin & Efraim Sadka, 2005. "The Decline of the Welfare State: Demography and Globalization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262182440, March.
    12. Slaughter, Matthew J., 2001. "International trade and labor-demand elasticities," Journal of International Economics, Elsevier, vol. 54(1), pages 27-56, June.
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    Cited by:

    1. Torben M. Andersen & Allan Sørensen, 2013. "Product market integration, tax distortions and public sector size," Economics Working Papers 2013-28, Department of Economics and Business Economics, Aarhus University.
    2. Chen, Yu-Fu & Görg, Holger & Görlich, Dennis & Molana, Hassan & Montagna, Catia & Temouri, Yama, 2014. "Globalisation and the future of the welfare state," Kiel Policy Brief 76, Kiel Institute for the World Economy (IfW).
    3. repec:wfo:wstudy:47156 is not listed on IDEAS

    More about this item

    Keywords

    Globalization; Marginal costs of public funds; Labour taxation; F15; F4; H20; H40;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H40 - Public Economics - - Publicly Provided Goods - - - General

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