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The Impact of Globalization on the Composition of Government Expenditures: Evidence from Panel Data

  • Axel Dreher
  • Jan-Egbert Sturm
  • Heinrich Ursprung

According to the disciplining hypothesis, globalization restrains governments by inducing increased budgetary pressure. As a consequence, governments shift their expenditures in favour of transfers and subsidies and away from capital expenditures. This expenditure shift is potentially enhanced by citizens’ preferences to be compensated for the risks of globalization (“compensation hypothesis”). Employing two different datasets and various measures of globalization, we analyze whether globalization has indeed influenced the composition of government expenditures. For a sample of 108 countries, we examine the development of four broad expenditure categories for the period 1970-2001: capital expenditures; expenditures for goods and services; interest payments; and subsidies and other current transfers. A second dataset provides a much more detailed classification: public expenditures, expenditures for defence, order, economic environment, housing, health, recreation, education, and social expenditures. However, this second data set is only available since 1990 – and only for the OECD countries. Our results show that globalization did not influence the composition of government expenditures.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1755.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1755
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  1. Axel Dreher, 2005. "Does Globalization Affect Growth? Evidence from a new Index of Globalization," TWI Research Paper Series 6, Thurgauer Wirtschaftsinstitut, Universität Konstanz.
  2. Axel Dreher & Lars Siemers, 2005. "The Intriguing Nexus between Corruption and Capital Account Restrictions," KOF Working papers 05-113, KOF Swiss Economic Institute, ETH Zurich.
  3. 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.
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  8. Schulze, Gunther G. & Ursprung, Heinrich W. (ed.), 2001. "International Environmental Economics: A Survey of the Issues," OUP Catalogue, Oxford University Press, number 9780198297666.
  9. Axel Dreher & Noel Gaston, 2006. "Has globalization increased inequality?," KOF Working papers 06-140, KOF Swiss Economic Institute, ETH Zurich.
  10. Philipp Harms & Heinrich Ursprung, 2001. "Do Civil and Political Repression Really Boost Foreign Direct Investments?," CESifo Working Paper Series 421, CESifo Group Munich.
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  12. Shang-Jin Wei & Irina Tytell, 2004. "Does Financial Globalization Induce Better Macroeconomic Policies?," IMF Working Papers 04/84, International Monetary Fund.
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  15. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
  16. Gersbach, Hans & Schmutzler, Armin, 2005. "The Effects of Globalization on Worker Training," CEPR Discussion Papers 4879, C.E.P.R. Discussion Papers.
  17. Dooley, Michael P & Isard, Peter, 1980. "Capital Controls, Political Risk, and Deviations from Interest-Rate Parity," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 370-84, April.
  18. Garrett, Geoffrey, 1998. "Global Markets and National Politics: Collision Course or Virtuous Circle?," International Organization, Cambridge University Press, vol. 52(04), pages 787-824, September.
  19. 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.
  20. Michael Lamla, 2007. "Long-run Determinants of Pollution: A Robustness Analysis," KOF Working papers 07-164, KOF Swiss Economic Institute, ETH Zurich.
  21. Matthias Busse, 2004. "Transnational Corporations and Repression of Political Rights and Civil Liberties: An Empirical Analysis," Kyklos, Wiley Blackwell, vol. 57(1), pages 45-65, 02.
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